– My name is Chase Robinson. I’m the Interim President
of The Graduate Center, and I am delighted to welcome
you to this evening’s event. I’m told it’s the hottest ticket in town. Now, be that as it may,
the response I think is testimony to the enormous interest in Professor Piketty’s work, and the topic of
inequality more generally. Now Professor Gornick, to my right, will speak briefly to the
latter in her comments, but I’d be remiss if I failed to explain why this is important and
this timely discussion should take place here
at The Graduate Center of the City University of New York. Here at the crossroads of
Fifth Avenue and 34th Street, we are the center of
the University’s Network of Advanced Teaching and Research. Especially in the theoretical
and social sciences and the humanities. We’re a graduate school
oaf arts and sciences. We’re a constellation of some 35 centers and institutes of applied
and theoretical research, and we’re a platform for
performance, discussion, and debate in some community of 7,000 students, scholars, and researchers, dedicated to the idea that
learning is a public good. We put this principle into
action in a variety of ways. One is through teaching. Our faculty and doctoral students share the research in classrooms
in every bow of the city. Teaching about 200,000
New Yorkers every year. Another is our public programming and tonight’s event is exemplary. It’s exemplary I think in many respects. One of which is that it reflects the value this institution places upon evidence and data based debate. In a public sphere saturated by opinion, it seems to me that public institutions have a special role in
fostering such reasoned debate, whatever the topic may be. The event also exemplifies
something even more obvious. Our commitment to making
fundamental contributions to understanding problems of
pressing and public concern. There could I trust,
scarcely be one more pressing and public than that
which we address tonight. Facing as Paul Credman said earlier today, a potential political
economy spiral of inequality. Tonight’s event is cosponsored by The Graduate Center’s
Advanced Research Collaborative which fosters the
interdisciplinary research that makes such understanding possible. The Luxembourg Income Study Center which is one of The Graduate
Center’s great assets. An internationally renowned
data archive and research center devoted to enabling comparative work on socioeconomic inequalities. The Director of the
Center is Janet Gornick who is also professor of
Political Science and Sociology. She has been widely
recognized for many years for her scholarship on gender inequality and recently she has turned her attention to income inequality. Her edited volume Income Inequality: Economic Disparities in the Middle Class and Affluent Countries, was published just last year by Stanford. Janet, I hand the podium to you. (audience applause) – I want to begin my brief remarks by telling you what it
is that we do at LIS, that will illuminate why we in particular are so thrilled to host
this event tonight. In short, we gather data
sets from around the world, now from nearly 50 countries, and we harmonize them
into a common template, so that researchers and policy makers can use them for comparative research. Since our founding in 1993, over 5,000 researchers have used LIS data, and most of their work has
been aimed at understanding the nature and the institutional roots of income inequality, of poverty, and of labor market disparities. In addition to making data available to a large and expanding
virtual community of scholars, we carry out research. We set methodological standards. We serve as a repository for
scholarship based on our data. We inform journalists and
NGOs around the world, and we teach and train. Over 500 young scholars or alumni of our annual summer workshop, including a dozen of The Graduate
Center’s own PhD students. In the last three years
we’ve been incredibly busy. As I’m sure all of you know. What we’ve seen recently
is an extraordinary development that’s unfolded. Concerns about inequality have attracted unprecedented attention
in the United States and in many other countries, and this attention is cross
cutting academic research, the media, and public discourse. A confluence of factors has sparked an intensified this
international conversation about high and rising inequality. The Occupy Movement captured
worldwide attention. Scholars have produced fresh
accounts of inequalities. Origins, nature, and effects, and contributors and activists have contributed vivid stories and innovative visualizations, and new data have been
created and analyzed. One of the most exciting developments has been the launching of
an original data source. One that lends the empirical
foundation to the book that we’re celebrating this evening. I’m referring to The World
Top Incomes Database. A singular achievement for which we thank Tom Piketty and his international colleagues. Let me pause to note something. Something that’s well known
to inequality researchers, but might be less well known
to some of you in the audience. Household surveys, the core
ingredients of our work at LIS, tell us an immense amount about the whole of income distributions
with one exception. They’re not well suited,
for technical reasons, to looking at the very top. For research on the
wealthiest of the wealthy, a different approach, a complementary one, has long been needed. Thomas and his colleagues
have finally filled this crucial hole with the
launching of these data. Data that are built from
historical tax records, and these new data illuminate
what survey data cannot. The top of the top. Thus allowing us to peak at
the part of the distribution that was until now
largely behind a curtain. At LIS, we consider
this fantastic database to be a sibling of sorts and together the two data sources are a great deal to our shared colleague
and intellectual mentor the British Economist Sir Tony Atkinson. But excellent data come to life only through excellent analyses, and no data could hope for more than Thomas Kipetty, and
this astonishing book. Indeed, Capital in the 21st Century is drenched in data. Its claims rest on a mountain of evidence, but of course the book
is not only descriptive, it’s innovative theoretically, integrating economic
and historical methods, to build a novel framework
for understanding capital accumulation, economic growth, and rising inequality. The book is also boldly prescriptive, laying out a sweeping
plan for transforming public finance on a global scale, and it’s gorgeously written. It’s a masterpiece of clear exposition. Tonight we’re joined by
five remarkable scholars. I’m gonna introduce them
with all the brevity that I can muster, and in reverse order of their appearance. Branko Milanovic, is one of the world’s most prominent scholars
of global inequality. He was for many years, lead economist at the World Bank. In January of this year he joined us here at The Graduate Center, where he serves as senior
scholar in the LIS Center and Visiting Presidential Professor. Steven Durlauf, professor at
the University of Wisconsin is author and editor of
many books and articles. He currently serves as editor of The Journal of Economic Literature which I might add will soon
publish Branko’s review of Capital in the 21st century. Paul Krugman, professor
at Princeton University is know for his extensive
body of academic work, his much read column
in The New York Times, and his lively blog. He’s received an array of honors, including the 2008 Nobel Memorial prize in Economic Sciences, and Professor Krugman will soon change his home institution. This July he’ll become
distinguished scholar in the LIS Center here
at The Graduate Center, and in 2015 he’ll join the faculty of our PhD program in economics. Joseph Stiglitz, Professor
at Columbia University is also recognized for
remarkable body of scholarship. He has served inside
and outside of academia, and recently has been a leading voice, in public discussions about
the price of inequality. He too has received countless honors, including somehow two Nobel prizes. He was awarded the 2001
Nobel Memorial prize in Economic Sciences, and he’s served as lead author for the panel on climate change, that won the Nobel Peace Price in 2007. Thomas Piketty, is Professor at the Paris School of
Economics and arguably today, the world’s foremost scholar of inequality of income and of wealth. Thomas, welcome. Welcome to The Graduate Center. (audience applause) – Let me tell you what I’ve
tried to do in this book. This is really a book about the historical evolution of income and wealth. The primary objective of this book is to put together a
lot of historical data, that we have been collecting
over the past 15 years and I’m trying to put this body of data in a coherent manner. I should stress right away
that this comes really from a connective research process. The book is, I am the
single author of the book, and I’m responsible for all the mistakes that are in the book, but I could never have
collected this data on my own. I started working on
France about 15 years ago, and then I was very lucky to find Tony Atkinson, Tony did
the same for Britain. We did the same for the U.S. We studied different variable,
we studied Argentina. We studied India. Evolution of wealth,
resources, and simply income. I cannot reach out to everyone, but overall I see putting together the most extensive set of historical data on income and wealth, and this book is simply trying to give access to this data to everyone. There is a database that’s online which can be easily accessed. I’m trying to do my best in this book to try to explain what we find, but I certainly don’t claim that I have perfect explanation for everything. There’s a lot of missing data. At least we know more than we used to know which is good, but we still know very little
in the social sciences. In part four of the book, I try to draw some
conclusions about the future and about policy, but let me make clear right away that just like everybody I am better at analyzing the past
rather than the future, and you can very well
disagree with everything that’s in part four and
still find some interest in what’s in part one, two, and three, and to make clear the
objective of the book, it’s not to tell you
what’s going to happen, but rather to give everybody a chance to write their own part four, and make their own mind about, this evolution of income
and wealth distribution, and this economic issues
that belong to everyone, and certainly not only to economists, or the mission as a scholar, you simply make advantages, that I have spent a lot of
time collecting this data and the objective of the book is to try to show what I have found. In this presentation, I will present us two results. Old drafts in the series
can be accessed online. I will, of course, not present everything. There are two big parts of data that I put together in this book. One comes from the The
World Top Incomes Database that Janet was referring to. The countries in red are in the database. The countries in blue don’t
want to have a database. Being in the database means that we use the historical data on income since the creation of the income tax. The advantage of the income tax data is not only that you can look at detecting better ways as you can do with safe server data, but it’s also that it has been
available for a long time. We don’t have income server for 1914, but you have an income
tax that was created in the U.S. in 1913, in France
in 1914, in the U.K. 1909, but also in India in 1922, there is a number of ex colonies, whereas the colony created
income tax quite early. We put together this income tax data together with national income accounts, in order to compute the evolution of the share of top income
groups in total income. An example of what we get is this graph for the United States, where you have on this graph of evolution of the share of total U.S.
income going to the top 10%, so you see this big decline in
the first part of the century which is what in the 1950’s found. Kismet’s was the first economist to produce the income inequality series using some of the methods we are using, which is the only method. We use income tax data for talking of national account for the
aggregate income delineator. Only what we’ve been doing
to extend Kismet’s growth to make more years in many more countries. Kismet said one country for 35 years, and we have over 20 countries
for an entire century and this changes quite a
bit what we can conclude. In particular, we can see that out of the picture changes quite a bit the conclusions that you can draw. In the 50’s, 60s, 70s, Kismet had this very
optimistic conclusion, that inequality of income tends to reduce in advanced stages of development, and that this is the end of and dreams of growth here was this view that this
was the end of the story, and the past 30 years we’ve had this huge increase in the
share going to the top. Actually I have not put the latest data that we have put online. Recently for 2012, but now for 2012 we are a bit over 50%. The trend seems to be continuing. There was a decline in particular in capital gains following the process, and also following the 2001
end of the internet bubble, but in 2012, we are already
above the 2007 point. The process seems to be continuing, and the question is where
is this going to stop, and it’s important to realize that you were talking with big numbers. You go from 30% to 35% of national income going to the top 10, to
50% going to the top 10, that’s going to be 60%, 70%. Some people tend to believe that wherever it stops will be the right point, but at some point I think you
have to look at the numbers. You are talking a big number. This was enough to observe three quarters of U.S. macro growth over the past 30 years. Given that the growth performance was not that great, capital growth rate of 1.5% if you have 2/3 or 3/4 of
that going to the top 10 and mostly to the top 1%. It’s not a very good deal for all the rest of the population. This numbers need to
be looked at seriously. I look at them in the book, but the book for the most
part is trying to look at wealth rather than income. Both are important. Of course wealth is
partly the accumulation of saving from income, but wealth is a more complicated object because it also involves inherited wealth. It also involves natural resources, which have been saved by no one. It’s a different. In a way it’s an even
more interesting notion, and also the inequality of wealth, the concentration of wealth is always more extreme than
the concentration of income, and it could be differently, but it is like that, and also the advantage
of the study of wealth is that you can go back through time through the 19th century because you have wealth records starting in the 19th, or even 18th century of Britain and France, whereas the income you cannot
go much in the 19th century, which is a problem because you cannot put in a broader historical perspectives, huge shocks that have been starting with World War I, World War
II, The Great Depression. Let me show you another U shaped picture of this one that was worse. It looks a lot like the picture because you have this big shock of the World Wars and
the recovery in the past, but it is actually a
very different picture, and a very different process, because this is not a
picture about inequality, this is a picture about the
aggregate value of wealth. This is aggregate net private wealth. This is what’s in Germany,
France, and the U.K. As a fraction of national income. You can see that in the late 19th century we have what I call in the book, patrimonial societies, wealth based societies, with six or seven years of
national income and wealth. Then you have a big crisis following the war and the Great Depression, and in the 50s aggregate product wealth is only two to three
years of national income, and then we have a gradual recovery, which has taken a very long time. Let me be clear about the fact that this does not necessarily
imply rising inequality. It could be that if everybody have an equal share in that wealth, that would not imply
necessarily rising inequality. This is not necessarily bad to have, after all it’s good to
have a lot of capital, to have a lot of real
estate, a lot of equipment, a lot of meetings, and right now in France, or Europe, in the U.S. as well, after all it’s good to have
a lot more capital than that and in fact, sometimes you are worried that we are going to leave a lot of public debt to our children,
which is certainly true, but we’re also going to leave more wealth than ever to our children. That is for others who
have wealth to transmit. This is good news except that in practice the concentration of this
capital ownership is very large. In this presentation, the last part of the presentation, and I guess I should try to
find some time somewhere. I’ll make some guess at the time. I’m gonna try to make three points. The first point is about the return of this patrimonial or
wealth based society in Europe and Japan, and what we observe is
that wealth income ratio, the aggregate value of
wealth relative to income, seemed to be returning to very high levels in the slow growth countries, and basically it was
shown in Europe and Japan we have very low population growth. Much lower than in the U.S. In a slow growth society, wealth accumulated in the past can naturally become very important. In the extreme case of a
society with zero growth, if you keep saving 10%
of your income each year, you will accumulate an infinite
concentration of wealth. Probably at some point you will stop, because if everybody has ten floors of private apartments, then rental value of this
capital will go to zero, and nobody will accumulate any more. As long as you have some growth, this could not go to infinity. The ratio of wealth to income
would not go to infinity, but it can get very high. This is what you have. The low growth society. The natural resource, the value of wealth
accumulated in the past can become very important as long as people keep saving some sizeable fraction of
their income each year, and in the very long run, this can be relevant for the entire world. The second point that I would like to make is about the future of
wealth concentration. In the book, one important message is that a very strong force pushing throughout potentially very large
inequalities of wealth, is the gap between R and G, where R is the rate of return to wealth, and G is the growth rate, and one of the points I’m
trying to make in the book, is that with high R
minus G wealth inequality might return or even be
higher 19th century level, but it all depends on in the end the kind of institutions that we choose to democratize wealth or to
allow more wealth mobility and people to access wealth. In particular, proper
progressive tax on net wealth can be a way to try to
increase wealth mobility and to make this vast quantity of wealth which itself is a good thing, more equally distributed. Before I get to this tax and
progressive tax conclusion, let me try to explain a little
bit more these two notions of the rate of return to
capital and the growth rate. Sometimes people are surprised, when I say that R can be
bigger than G forever. It’s very important to realize that there is no logical power. There’s absolutely no reason
why R and G should be equal. It’s as if you are
countering relative force with electromagnetic force. I expressed you have
no reason to be equal. Both side have percentage, but there’s really no reason. It would be an incredible coincidence. In fact, during most of human history, the growth rate was zero, In traditional societies, the population would have no growth, and productivity would
have very small growth. Growth was close to 0%, and of course R was bigger than G, because the rate of return for instance, to land or to assets was
typically of the order of 4% to 5% per year. If you open any novel, you would see that it’s
of use for every reader that the value of land will be typically 20 or 25 years of annual
rent to this land, which corresponds to a return of %4 or 5%. Every reader knows that if you want to have 1,000 pounds per year in annual, in order to pay your domestic servants, and have a certain standard of living, you need to have a capital
of 20,000 pounds for that 5%. I’m going to give you 1,000 pounds. It is so obvious for everybody that Janet doesn’t have to explain it, because wealth is about
the life of these people. Both the master and the
servants depend on this. In a way R bigger than G was even the foundation of society. R bigger than G was what made it possible for London group of owners to leave and to do something
else in their lives and to care about their survival, and to have living standards, Out of the written. Now with the industrial revolution in the late 18th and 19th century, there was an increase in the growth rate, but it’s important to realize that, the growth rate even
with industrial growth and a lot of typical innovation, it was the 19th century, and it was not larger
than 1% to 1.5% per year. It was not enough to
counteract the fact that the rate of return tend to be 4% or 5% and to me this is a central explanation as to why the concentration of wealth in the 19th century until World War I in European societies, was not lower than in regime societies. It was just as large, if not larger, and in fact the data on
wealth concentration, and I’m not going to be
able to show you the graph, that you actually have
rising wealth concentration until World War I in
Britain and in France, and it’s very funny, because
in France at that time, a big part of the financial
and political elite, was saying we’ve done
the French Revolution, so now we have done our job, and we are a country of
small property owners, since the French Revolution, so we are not like in Britain, where they are this aristocratic country, and they should introduce
progressive state tax but we don’t need it, because we don’t have the land, except that in 1910, land does not matter, unless what you see in Downtown Abbey, but it’s only because it’s Downtown Abbey, but in the real life of British
wealth holders of the time, land was less than 5% of national wealth. What mattered in 1910, was
all the financial assets, real estate, business assets, and the concentration of the assets, Republic like France, did not work differently than
in a monarchy like Britain, so I’m very happy to wake up
in a Republic each morning, but I don’t see this
makes a lot of difference, in terms of concentration of wealth, and in fact the concentration of wealth, was just as large in France
prior to World War I, than in Britain. In the 20th century, this inequality between R
and G, was for two reasons, and let me show you very quickly. This is some estimate
of the rate of return and this is a growth rate. What happens in the 20th century is that you have unusually
large growth rate. That’s partly due to the
recovery after World War II. In Europe and Japan you have
4%, 5%, growth per year, and in the 50s, 60s, 70s, but that’s partly because
of the reconstruction following World War II. The other reason why you
have very high growth rate in the 20th century, is
a more positive reason. It’s not the war, it’s due to
very large population growth. It’s important to realize that
this is a big part of growth particularly in the United States which is a country that is in a way based on perpetual population growth, which is what we all love in America, but at the same time which makes the study of the U.S. in a way not generalizable to
the rest of the world, because the U.S. population has multiplied by 100 over the past two
centuries, from three to 300. Probably that’s not gonna
happen next two centuries. Population of France
just rose from 30 million at the time of the French Revolution, to 60 again today. This is still the same country. Most the same families. Most the same buildings in Paris, and in a way this is more relevant for the rest of the planet, or for the future because
maybe the world population is still going to grow. It’s going to be multiplied by two, but according to UN population projection, it’s actually gonna stop growing. In the U.S. case even for the U.S. Population was 100 million,
one century ago, 1900, it’s 300 million today. Is it going to be 900
million one century from now? Maybe yes, maybe no, but in any case whatever happens, we’ll have a billion on the balance between the rate of return to
capital and the growth rate and the big part of the
decline in the growth rate will have to do is decline
in population growth. The other thing that
happen in the 20th century is you have large capital loss during the world war period in particular. This was before tax and
before rate of return but if you take into account
the capital loss and taxation, then you can see that
during the 20th century, this inequality between
the rate of return, the after tax rate of return, and the growth rate was reversed, and it was reversed due
to very unusual events. World War I, World War II, and also due to this
large population growth, which existed certainly
for the work population. This implies that it’s quite like physics. It’s going to rise again in the future. One very concrete example of this. This is a concrete example
of R bigger than G. This is the rise near the top of the world distribution of wealth according to Forbes magazine, which is a very reliable data source. We live in a time where
people buy magazines in order to have information
about top trends. We prefer that they buy UN or IMF, or statistical publication, but they won’t find the information in the statistical publications. People are waiting for information. Let’s see what we get. What we get is that if you compute a fixed structure of the
population of the world and you look at the average
wealth of this group, of course some of the same
people over the period, and some people and groups will come in. You have new billionaires coming from countries and that’s fine, but what you see is that the
average wealth of this group has been rising at between
6.4%, 6.8% per year which is three times as fast as average wealth per adult of the world. The top of the distribution is rising three times as fast as the average. This means we are in a sequence
of rising concentration of wealth and the question is how far this can go? Let me just conclude by saying the study of Eastern is important because a lot of what’s happening now has already happened in the past. France, in particular, there was a study of pre
World War I capitalism. It is very important for the future. I have read some reviews, not give names, but who say that societies
in Europe before World War I, so what can we learn
about our future century with all this nice innovation? 1900 was a time when we
invented the automobile, electricity, radio, transit. Of course this is much less
important than Facebook but we are still, these are important innovations. Still these very important innovations, brought some mobility as a resolution. You did have entrepreneur
at that time like today. But this also brought a
huge concentration of wealth because this growth rate that you had was always in the range
of 1%, 1.5% per year, was not enough to control all the factors. The rate of return was 5% or 6% and lead to very large
concentration of wealth because initial wealth
inequalities tend to get amplified. R bigger than G does not imply that wealth inequality will arise indefinitely, because at some point
in the life of family, things happen. Someone goes bankrupt, or if a
family has too many children, or too few, or many things happen. There would be some mobility, but for bigger R minus G, the wealth concentration equilibrium, throughout society, will tend to converge and can
be very large concentration. It can be extremely large, and potentially both for economic mobility and economic dynamism and economic growth, and also for the people who are working for the democratic institutions. The ideal solution as I said, would be a progressive tax on net wealth. I would not elaborate too much about this, except for say that
the history of taxation is full of surprise, and many people, this is a short history of income taxation and income tax rate over the past centuries. You can see here, many people in the 1900,
1910 in particular, in this country were saying that a progressive income
tax would never happen, and indeed the constitution
of this country made it impossible at that time. Still it happened. Sometimes things happen, and I’m not terribly impressed by people who claim to know what’s going to happen or not going to happen, or people who say there will never be a progressive wealth tax. I don’t know what they would have said in 1900, 1910. Let me just insist that
United States of America invented progressive taxation. Largely because it didn’t
look like class within Europe. President of the American
Association in 1919, and was giving this big
presidential speech, was saying my fellow American economists, be careful, there is a risk that we become as unequal as Europe, and this is the biggest threat
for the American economy. Today this can seem completely crazy, but this is one of the reasons why, the U.S. invented this very high tax rate. The only time when Germany
such a high tax rate was actually in 1946, 1948, when the tax policy of Germany is chosen by the Americans, and this is country
that’s using the tax rate. This exactly the same. This is the only time where
you have a 90% tax rate. In Japan it’s 1946, and 1948, and this was not to punish
the Germans or the Japanese, because most problems are still not. This was part of the civilization package. You bring democracy, and you bring progressive taxation, because this was at the times of in America of ever excessive incomes. This lasted for half a century. Apparently this destroyed
the American capitalism. Probably because this was applied only to very excessive
incomes that we see today. One million or two million dollars. Which are not needed to get growth, and in fact the growth for this year was higher before than it
has been more recently. Let me stop there. I’ll assume I’ve already been too long, and just to conclude that, the future can be full of surprises, and I see that I’m supposed to give the floor to Joseph Stiglitz. (audience applause) – That was a wonderful presentation. What I want to do in the
next few minutes is to go over some of the ideas
that he talked about. Try to talk about some of the things that I thought were most important, and then to talk very briefly about some of the things the book
stimulated me to think about. The fundamental contribution
as he pointed out was providing us data
with what has actually happened to the distribution
of income and of wealth, and it should be really enlightening. Some of us went to graduate
school at a particular period in this curve, when things
were looking very good, and it gave us a very
distorted view of the world, and it’s nice to see what
the world was like before, and very bad to see
what it was afterwards. It really is important for those of us who spend our time in a particular period. So many aspects of what
he pointed out that were, very much touching on what life was like at the particular time we
were in graduate school. One of the numbers he pointed out, the capital output ratio was
two, between two and three. We thought that was a law of economics. Now he explains to us that
it’s not a law of economics. I’ll try to say a little
bit more about it later. He’s also provided us with
an organizing framework for thinking about the evolution
of inequality and wealth which I think is very important. He’s also refocused attention on the role of inheritance
as a source of inequality. There was a long period of time where people almost didn’t
talk about inheritance. The standard model was
the lifecycle model. The view was that people worked, saved, and the dominant model of economics was this model of lifecycle savings. Now this work has helped focused attention on inheritance as a source of inequality. Of course, the main focus is the inheritance of financial capital, but there’s another important aspect, which is the inheritance of human capital. Which affects people’s
productivity, wages, and so forth, and the basic idea here as I say, I think can’t be more emphasized, which is societies in which positions are in an essential way
based on inheritance are fundamentally different from those in which positions arise, through individual’s own
efforts and abilities. We like to believe
ourselves as a meritocracy. Those at the top deserved it. It wasn’t what they inherited, but increasingly this is not so. Now he hasn’t had time to go through the richness of the whole book, but one of the points
that he calls attention to and my own work called attention to, is there were many ways in which inequality is created. The standard theory that dominated economics for a very long time, was called the marginal
productivity theory, that people’s wages were related to their contribution to society. That idea was very much discredited in the 2008 recession where the bankers who had brought
their firm and the world to the brink of ruin, walked off with huge bonuses, and no one could justify that
with marginal productivity. Their social contribution. Some banks were so embarrassed they decide not to change the pay, but change the name, from performance bonus to retention bonus. But there are all kinds of others aspects, ways in which inequalities get generated, and I’ve listed them on this slide, but I’ve been told I
don’t have very much time. Just take a quick look at
that if you’re a speed reader. The most important point is the one that he emphasized on one of his slides, is that inequality is not just a result of economic forces, but it’s the result of
policies and politics, and if you looked at the key
variable that he stresses which is the rate of interest relative to the rate of growth, it’s the after tax rate of interest, or the after tax rate of return, and what he points out
is how that’s changed. That’s a result of politics and policies. It isn’t inevitable that
R be greater than G. It’s a result of our policies, but of course the policies themselves are affected by the nature of inequality. Paul and I have talked a lot about how extremes of economic
inequality that we have inevitably get translated
into political inequality. Particularly, when you
have the rules of the game, of the political process themselves, being set in a political
processes which themselves are, in which the wealthy have undue influence. Thomas emphasized wealth inequality, and I just want to talk about the fact that there are many other
dimensions to inequality that he talks about at various points. The most important is opportunity. He referred to this as mobility. The chance of somebody at the bottom making it to the top, or bottom making it to the middle. I thought it was very interesting. He referred to the fact that one of the reasons that the United States had a very high tax rate at the top, was it didn’t want to be like old Europe. Well, we succeeded now to
be worst than old Europe. We now have a lower level of mobility, than any of the other advanced countries, or one of the worst. There’s different data sets, and they give different numbers, but we are at the bottom
of the advanced countries. There are many other specific
aspects of inequality, again, which are related to
our policies and politics. Health inequality. America has probably the
worst inequalities of health, in the sense that if you’re at the bottom of the distribution your life expectancy is very
low relative to the top. You have this divergence there. At least in the American context, some of these have much
more political salience, and are likely to engender
a political response, and I testified a week ago
in congress in the Senate, is very much that there’s
a really strong sense that something’s wrong when we’ve
lost equality of opportunity. The notion of the American dream is something that’s very much in our sense of self identity, and the sense of others perception of us, and the fact that that is not true, should be and I think
is deeply disturbing. There are many other
aspects of inequality. He again emphasized the
concentration at the top, but there are other aspects
that are also going on that are in the United States
particularly, very disturbing. The hollowing out of the middle, increasing poverty at the bottom, and I think it’s interesting
that all of these are important but probably the hollowing
out of the middle, is having the most salience
right now in the United States. What I want to now turn to is, a set of ideas that I thought, as I say the book was
very very stimulating, and I want to maybe for many this will be a little bit boring, but I want to spend a few minutes talking about reconciling his book with standard growth theory, because these subjects have been over. You’re shaking your head, Paul. You think I shouldn’t do this? – [Paul] You can go ahead. I made a strategic decision not to. – Let me just spend a
few minutes doing this. There are two questions. The distribution of income
among the factor shares. The division of national income between laboring capital, and the other one is the distribution of the income and wealth
among individuals. The key questions are, are the recent observed
patterns likely to continue? As Thomas pointed out, the share of the top 10% has now reached over 50%, and you saw that graph, and you see that continuing, you get very, oh, it says stop. There’s a conspiracy here between Paul. That tells me I’m not supposed to go on. Let me go on very quickly to the last. The most plausible
analyses lead to the view that it’s not gonna go on forever, but it can get much larger, and the question whether
it goes on forever, is not really the relevant question. The question if it’s
gonna get much larger. You ought to be doing something about it. There is a point I wanted to raise, and I won’t be able to discuss, which is the difference between what you might call financial wealth, the value of wealth, and the number of machines, the productive capital, and a lot of what’s been going on, is an increase in the
value of financial capital, that has exceeded the
increase in the capital stock that is to say productive machines, and I think that’s important to understand a little bit of the patterns that we’ve observed. Thomas emphasized the relationship between the after tax return
and the rate of growth as a determinant of the
concentration of wealth, the growth of wealth at the top. I just want to emphasize that actually, there are several other factors, some of which he talks about in this book. It’s not just the average
return on capital, but it’s the distribution of the return, and the persistence of those differences especially across generations. Formally, we’ve talked about this as the nature of the stochastic process and describing the
returns, population growth, things like the aspects of
the inheritance process. The number of children,
the bequest function, the issues of assortive mating. These are important because
the nature of the overall inequality and again the nature
of the inequality of wealth really is affected by this. There’s an old saying in
the United States about rags to riches in three generations, and that’s an example that
you can have a lot of wealth, but lose it fairly quickly. I once asked one of my
friends how did that particular person get to be a, he had about $5 billion dollars, and I wondered how he got his money, and the answer was he
inherited $10 billion. So that’s one of the ways you can get to become a $5 billionaire. It’s the way I recommend. The bottom line is, wealth inequality is not
likely to increase forever, but could become much worse, unless it’s offset by policy. Policy affects each of the variables and it determines the process of that I described before. For instance, one of the process aspects is the extent of assortive mating. Economic segregation for
which there’s been evidence of increasing economic segregation, can affect the extent of assortive mating, and the nature of our
selected universities can affect that. The most important variable is taxing return to capital bequests, because that determines the relationship between that after tax return
and the rate of growth, and some of the research that he’s done that he didn’t refer to, shows that increasing the
tax rate at the very top does not have an adverse
effect on economic growth. Does not have the kind of adverse effect. Part of the reason, I believe, is a very strong element of seeking, particularly at the top, so that it doesn’t have
the adverse effects that those who oppose those increased rates of assortive mating. That’s why I think just in conclusion, we can’t be sure that in the next 50 years trends of the last 30 will continue, but we should be worried. There are many instruments at our disposal to create a more equal society, and many of these instruments would at the same time create a more efficient and better performing economy. Thank you. (audience applause) – I should explain. Actually I have, basically I was fascinated professionally by the same thing Joe was
fascinated by professionally. This book is from the point of view of an economic researcher, the thing that really grabs you is that it does this kind of unified field theory where it takes together the theory of economic growth, the theory of the distribution of income between different factors, between capital and labor, and the theory of the distribution of wealth and income among individuals, and this sketches out the way that they can all come together, and I thought initially preparing for this event myself, I want to talk about that, and then I realized, no way I could do it in 10 minutes. When Joe started to do that, I thought, no Joe, you’re not gonna do it. It is fantastic stuff, and we want to hear more. In fact, it is something. Whatever else we’ll say here, you do need to appreciate that there’s a level of depth in this analysis, a level of a sense of
intellectual frontiers opening that is hard to explain unless you’re in the business yourself. What I thought I would do instead is go a little bit meta, and talk really about
why are you all here, and why are whoever’s watching this, why are you watching? Why has this book had
such an enormous impact? Why is this something that is hitting with such force now? I think I have some perspective on this, because I’ve worried about these issues of inequality for a long time. My first popular book, Age
of Diminished Expectations, which was put out in 1989, had a chapter on inequality,
including the 1%, at the time by the way, it was originally published under the auspices of the Washington Post, and they wanted me to
take the chapter out. They said nobody wants to hear about that, but that in itself tells you something, and my version of the history, there’s a been a lot of resistance, to the notion that what is in fact happening to us is happening and there’s been a series of moments that I think of as being, oh yeah, guess what, moments. Piketty’s book is the
latest and most important. Actually he’s responsible for
at least two of these moments. First one was, as became increasingly apparent during the 1980s, that inequality was
sharply on the upswing, there was a lot of denialists, a lot of attempts to deny that anything was really happening, and it took some time before
really a certain point that even the survey data that
Janet Gornick talked about, it made it clear that something, there’d been a dramatic shift in the way that our society was evolving, and you can say oh yeah, guess what? Just look at the census survey data. You can’t deny this at any point. This doesn’t stop people
from continuing to deny it. One thing you learn in this debate is that old arguments never go away, no matter how thoroughly refuted. They always come back, and actually Thomas says a
few things about that as well. The ability of elites to find people defending their position regardless, but then there was a next phase, which is still not entirely over. When people say okay, well
there’s some rise in inequality, but what it’s really about is, it’s about education, and what you’re looking at is, the top 20%, the well educated
people are doing well, and the rest are doing badly. You still find people writing things. That’s the stuff about the 1%. What matters is the inequality between the highly educated and the less well educated, and we should address that, and that’s certainly now an analyst issue but at a certain point, and to a large extent
thanks to the work of Piketty and the Piketty
School, I guess we could say, we got to say, oh yeah, guess what? It turned out that a very large part of the rise in inequality, was in fact, at the very top. It was not the highly educated pulling away from the rest. Or not solely, or even mostly. It was in very large part, the 1% pulling away from the next 19 and in fact,
the 0.1% pulling away. It really was and is a very dramatic. It is the very top that’s driving a lot of what we’re seeing in the changes in our society, which that was news, and it’s still rejected by some people, but I think it’s very important. It’s clearly a very big deal. Yeah, I like to say people think that it’s about education. I like to say that high school teachers and hedgefund managers have
similar amounts of education. It’s not exactly the same
evolution of incomes. Even within that, if people could see that, and of course again, no argument ever goes away in this debate, but people can see that they still, but this is not like
gilded age inequality, or Belle Époque inequality. Because what we have is
inequality of earned income. That people are making a lot of money. Certainly we have some people
who are earning lots of money but it’s not that. It’s wealth based upon, or it’s income based
upon what people can do, and therefore in some sense deserved, and that’s a questionable thing in itself, and there’s a lot of talk about the, there’s a whole school of writing, you see this quite often, that says well look, take a look at star actors or athletes, nobody else could do what they do, so it’s right for them
to earning a vast amount. To which actually there’s a
little oh yeah, guess what, that actually people like that are not an important part of the 1%. It’s overwhelming the business executives. Asked me who we’re talking about, we’re pretty much
talking about executives, but even so the argument was this is somehow earned income. It’s not inherited wealth, and to which capital in the 21st century is a gigantic oh yeah, guess what? It’s still true within the United States, a large part of the increase
in inequality since 1980 is about earned income or labor income, whether it’s earned or not, but Thomas says that’s
already about 1/3 of it, is capital. In fact, we’re already talking
about a substantial amount. The higher up in the
income distribution you go, the more capital is responsible, and furthermore it’s moving, and you can see that there’s the charts, there’s the data in the book, there’s the logic of the arguments, but also once you’re sensitized to it, you start to realize. You start to look at the Forbes 400, which is not a great
scholarly careful data source, but still useful. You discover that yeah there’s Warren Buffet and Bill
Gates up there at the top, but also four Waltons, and
two Kochs, in the top 10, but there’s a lot of
inherited wealth already, and there’s an awful lot
of people further down the distribution now are 80 years old, there’s about to be a
lot of inherited wealth in the top of the income distribution. We’re clearly moving in that direction, in a way that would make
it increasingly difficult to argue that where ours is
an earnings based inequality, it will look increasingly like
a wealth based inequality. That’s a revelation. I think we haven’t caught up with it. Even the liberals have
not caught up with it. Piketty’s, he’s got Jane Austen. I think our cultural reference
tends to be Oliver Stone, and the fact of the matter is, that Gordon Gecko was a long time ago. That movie was 27 years ago, and Gordon Gecko was a predator, but he’s a self made predator. These days, you’re more likely to be dealing with Gordon Gecko’s heirs, and we’re actually, our picture even on the left, picture of what’s happening, is actually rapidly getting out of date, because we are moving towards patrimonial capitalism. On the political economy, the fear many of us have expressed and Joe has expressed, and it’s implied very much in Piketty, of a spiral in which the
concentration of wealth, leads to a concentration of power, which release the policies that reinforce the
concentration of wealth. I think that becomes much
more compelling story. As you start to realize
that it is about wealth. It’s one thing to have
people earning high incomes lobby for policies that let
them keep more of those incomes but it’s much stronger if
we talk about dynasties that are able to push for policies that solidify the position
of their dynasties. The logic of fearing a political spiral, that leads you further and
further into oligarchy, is really quite compelling and disturbing. It’s not one actually
that’s even on the model that’s underlined in the books. It’s not one that goes on forever. There is in fact a limiting
equilibrium distribution of wealth where R minus
G drives everything. It’s one of the things I’m
having fun with professionally, but it would presume to
be much more unequal, even than what we see today, and one of the things
you learn from capital is that we have an income
distribution in the United States that is about as unequal as
that in Belle Époque, Europe, but we’re still evolving
towards greater inequality, so we are heading towards
a super level of inequality in the United States on current policies that will be like nothing
you’ve seen before. Just the last thing to say, to come back to it, one last thing. Political economy. I’ve found the discussion of the politics of the third republic. I think I got that right. Republic. The third Republic in France. Fascinating, because there you have
egalitarian ideology but highly unequal reality, and in fact egalitarian ideology used to disguise what was going on, because you’ve said, oh, how can you say that we are unequal, everybody has equal rights. We’ve broken up the aristocratic estates, and there’s many shades
of that in U.S. debate, and we now have Rick Santorum saying, class is an un-American concept. We have no classes in this country. Yeah, we can’t talk about this at all. Just to follow. This is a fantastic book. It’s intellectually fascinating. There’s a level of depth to the analysis. It solves problems that
people have worried at for decades and does it very elegantly, and let me just say a
point for the translator, it has to have been a wonderfully
written book in French, but it’s also a fantastically
written book in English, and just there are many ways I would have thought of describing the growing role of inheritance, but the phrase the past
devours the future, just in itself conveys so much more than anything that I would’ve
ever thought of saying. Read this book. Buy it, read it, and take it to heart. Thanks. (audience applause) – That’s a hard pair of acts to follow. A trio of acts, really. I’m a little worried that I’m gonna be the spoilsport in the sense that I wanna talk about the aspects of the book which I think are going to warrant debate. Places where I disagree, and in some sense I consider that part of the endorsement of the book, which is a very serious and
powerful intellectual exercise, and it not a book that is functionalist in saying all bad things are gonna tautologically associated
with a particular explanation. Really, I want to start off by saying, is that the accolades
are very much deserved. In other words, this is a
book which will have legs. It’ll stand the test of time. It’ll certainly be the case that it redirects and channels
scholarly research as well as other policy debate. Not only is the theoretical framework and the way of conceptualizing the determinants of long
run inequality original, it’s also debatable. In other words, it’s not something that, by itself, is irrefutable, or is not amenable to empirical
assessment in the light and the second thing is that the book also represents a profound combination of theoretical conceptual
rigor, and data work, and that sort of combination
is really remarkably uncommon at least in my discipline. I don’t think my colleagues would think that that’s unfair. Really what I wanted to do is to say something about where I think future research is going to proceed as a result of this book, so it’s a neuro picture,
nerdy perspective. As I see it there’s really two issues, or two dimensions that
warranted some comment. The first has to do with mechanisms. In other words, the book, the body of the analysis comes down as has already been
described to two ideas. One of them was this careful delineation of the details, the facts of inequality, and second the linking of those facts, to returns on capital, as well as aspects of
the overturn on labor, I.e. wages. The mechanisms I think are going to be the focus of much future research. I think in addition, even though Thomas is actually a little bit skeptical of it, I think there are
philosophical implications. In other words, when we talk about distributed justice, and leave it to inequality. The types of inequality focused on here, are suggestive of new directions, in how egalitarian justice
needs to be conceptualized. With respect to the returns
on capital and labor, probably among card carrying members of the economist party, there’d be quite a few questions about the issues of the rate
of return on capital. In other words, debates
about whether this, exceeding the rate of growth, is something that can
occur on the horizons. Part of that debate’s going to be silly. Thomas demonstrated it. It’s an empirical fact, and that’s what needs to be understood. That said, I think that, one comment I do want to make in terms of the increase in returns, is I felt that in some sense, the book, it wasn’t clear to me, whether it was the social determination of the rate of return on capital, or it was something about technology, and to be clear both of those factors are going to come into play. The reason I focus on
that is the assumption, or the strawman that’s being criticized, on marginal product pricing, even under every idealization needed, is also presupposing something about the nature of technology. I think there are good reasons to believe that there are non-convexities, or increasing returns to scale, which would make the marginal
product theory meaningless, but if these are the
sources of high returns on the socially determined
level of capital, that brings into play alternative policies than simply taxation per se. I really want that on the table, that the technology is something worth, again, investigating. Second comment, and maybe
I’ll just quote the author. He said, Broadly speaking the central fact is that the return on capital often inextricably intertwines elements of true entrepreneurial labor, and absolutely indispensable
force for economic development, pure luck, one happens at the right moment to buy a promising asset at a good time, and there this is outright theft. The point is putting this on the table, I think is important, but it also begs the question, is if we move away from
marginal productivity theory, what is the theory of pricing that we want to associate
with returns on capital, as well as returns on wages. It wasn’t incumbent on Thomas to actually develop this theory of how these are being determined, but it’s strikes me as that’s going to be where enormous amounts
of research are going to be in terms of providing the, if you’ll forgive the term, the micro foundations, for the macro inequality picture that’s being developed here. In wages, he’s a little bit, shall I say, non neo-classical. In which he goes, I am not claiming that all wage inequality is determined by social norms
of fair remuneration. The theory of marginal productivity and of the race between
technology and education offers a plausible explanation of the long term evolution of the wage distribution, at least up to a certain level of pay and a certain degree of precision, and I think again, this
is a fundamental idea. It is certainly not accepted, despite all of the work
in microeconomic theory, that has moved beyond
marginal productivity theory, in the last almost half century, but the question is then going to derive, develop how do we develop empirical tests of alternatives to marginal
productivity theory, that can explain the
observed patterns of wages? One comment I want to follow up there, is that there is something that I wasn’t entirely clear on in the book, which was the juxtaposition of
increasing growth of capital and stagnation of wages. If you move away from contexts, or all these technical assumptions, there is some intuition
that capital deepening in the economy is going to raise wages, and we simply don’t see that. My own view is that what we in fact have, is a decoupling of the economy, between different agents, and what I mean by that, if you have to think metaphorically about the difference between General Motors and Microsoft. Microsoft does not have a
lot of blue collar workers associated with it. In other words, I think
there’s important issues in technology in which
you have the possibility in which technology and
hence production process, evolves in ways that decouple
both capital and labor, in such a way you don’t get, even if there’s shrinking
share of the pie. An increasing pie that’s
relevant for everyone. Put that on the table. I would note that that idea is fundamental in many
microtheories of disadvantage, and things such as poverty traps, and what I mean by that, is I think, maybe self-servedly, much contemporary thinking
on poverty and disadvantage focuses on this idea
that real disadvantage represents economic,
racial, social segregation, in which you have
subsets of the population that are increasingly decoupled from the social and
the economic structures that link others up. I would put that on the table. I think that this issue of technology is worth thinking about. Now I have to be honest, I thought that this was
the one part of the book that was not as strong as the rest, in the sense that I thought the rejection of marginal productivity was a little bit too fast, because Thomas focused a great deal on unobservability of productivity, and in that I think it’s
not that he was wrong, so much I think right now
it’s a bit of an assertion, and the question is how does one provide empirical evidence that
that’s the right mechanism? Similarly, I think that the evidence, arguing that CEO pay is
not coupled to performance, is weaker than the book suggests. That’s a really technical remark, in the sense that I think he’s right. However, my assessment of
the empirical literature is that the evidence that’s in the book, is relatively flimsy. The final comment, as sympathetic as I am, having spent the last 15 years on it, on thinking about social
norms and the like, these are damnably hard to make compelling econometric arguments on. I emphasize econometric, because an important theme in Thomas’ book is there is more things
in heaven and Earth that I’ve dreamt of in
Russian, but nevertheless, in terms of formal empirical arguments, that’s going to be a
tough one to demonstrate. Now the reason I keep saying what are the mechanisms, in addition to the technical details, and of course the positive question, of how we want to think about ameliorating inequality. It strikes me you need
to know the mechanisms, in order to talk about feasible policies. In my judgment in addition to taxes, it’s natural to talk about
corporate governance rules, financial regulations,
intellectual property regime, and even increasing returns. You need to have all of these on the table once we have mechanisms, and then we can be more broad, in terms of thinking about policy, which is something that Janet
and Paul both emphasized. The normative issues, I want to argue there’s also some thinking that needs to be done. Thomas says, the fortunes
have perpetuated themselves beyond all reasonable limits, and beyond any possible justification in terms of social utility. The fiscal approach is a way to move beyond the futile debate about the moral hierarchy of wealth. My political philosophy friends are not going to like that one. The series points to the following. That is that the reasonable limits, I think it was too easy, in a sense that if you look at where egalitarian justice is as a philosophical endeavor, so much of it is focused on the idea of responsibility
sensitive egalitarianism. There is a hierarchy. There’s a profound distinction between inherited wealth, and wealth even if it’s some combination of talent and wealth seeking, or a talent for wealth seeking. I think that has to be on the table as something that one
needs to think about. That again, in my view, the supermanagers and the renters, aren’t quite linked up together. In fact, I claim that this
is what Thomas’s position is, that he was being unduly modest, and he’s actually taking a
philosophically different position on inequality. What I mean by that’s the following, from the so called micro
perspective of inequality, in which equality of opportunity is the natural object of interest, where the debates are, have to do with how to think about the notion of responsibility, how to think about the notion of dessert, and make that operational, in terms of designing policies, be they having to do with school finance, or the tax system and the like. In my judgment, what is
fundamentally new here, is an argument frankly that inequality of outcomes matters, and this is really the
argument on political economy that Joe and Paul put on the table, and what I mean by that is that if I have this idealized
view of a bunch of farms that don’t interact, and then produces 100
times as much as the next, and everybody’s eating well, that’s not really a profound
concern about inequality. However, enough phenomenology lives in the minds of quite
a few economists, I think. The reason the inequality
of outcomes matters here, is because of the zero sum aspects of a social and political, about modern society
such as political power, or the nature of status
in relations, et cetera, and as a result, one has to, I think one is necessarily, obliged to look at extreme
forms of inequality, in terms of their social
and political consequences, and that moves the argument away from opportunities and whether or not I have the right condition
variables in and the like. Notice that this argument
is logically independent of whether marginal
productivity theory is true. There really is no salience to that. After all, a talented person. The standard arguments in philosophy, you say of course, nobody deserves to. John in fact says that specifically, in his own writings. What matters here, and why the upper table, as opposed to the lower table, and talk about disadvantage
and poverty traps and the like. This has to be now at the center of egalitarian thinking, is because of these social and political consequences in which, there is an inextricable
and maybe not zero sum, positional aspect that matters. Let me stop there, and congratulate you on a brilliant book. (audience applause) – I have almost no job, because we have five minutes to reconcile the theory of growth, and marginal productivity
and remuneration of wage. I would like to actually
pick up on something that was I think present in all
three discussions, comments, and just put it to Thomas as a question, because I am not sure how much time, for the rest of they discussion. Let me put it like that. In very stark terms. I think it was present
in Paul’s conclusion, was raised by Joe and also by Steven. If you have a stereotypical image of patrimonial capitalism in Europe, like circa 1914, what was essentially dominated by large capital holdings
as you explained, and then you have current U.S., which produces more or
less the same outcome at the level of 1%, but where labor income, is more unequally distributed, and is present in the top 1%. Do you see difference in
political implications of the two and the implications for policy? – My main response, first let me thank the
Joe, Paul, and Steve, for everything they’ve said. I’ve very honored by what you’ve said, and carefully they’ve read my book, let me try to respond in the right manner, I think if this is what’s
happening in the U.S. This means that this is not, we are not at the end of the process. This as both Joe and Paul were saying, this is gonna keep rising and we could have the culmination of this very super managerial class, with a super wealth class, and therefore the total
concentration of income could well be even
larger than which it was in 1914 France, or 1788 France, where the aristocracy was between 1% and 2% of the population. This is comparable. What does this tell us about the political reaction to this? It’s very complicated. I think it all depends on the ability of the elite and the entire system to persuade the rest of society that this is viable. Persuasion in politics, in some countries of repression, a politician can play an
important role and make any inequality acceptable. At the end this is a conflict, and you have different belief systems, about inequality. It’s a cultural, and
political, and social history. I don’t know. The reason why I am not as pessimistic as a number of commentators
that are here and there, is that of course in the 20th century in Europe in particular, World Wars and the Great Depression, played a very large role to induce a shift in policy, and in France nobody wanted progressive income tax until World War I, and it was created because there was a need for money
to finance for the war, and it was not to goo schools or to make inequality to go down, this was to pay for the war, and sometimes people describe France as the land of equality, where people want to reduce inequality. Over time, of course not. We have a different tradition, and different countries, and France doesn’t have this tradition. Wars played a very large role in inducing a chance in attitude. Bolshevik Revolution played a large role. But in America to some extent, the democratic institutions, better play this role, because the impact of World War I, of the Bolshevik Revolution, and the American political
scene in the 1920s, there was much less
important than in Europe, and still there was this rise of progressive income taxation, and progressive estate taxation, because many people in the U.S. Did not like the way
equality had been changing over several previous decades, and there was a reaction
of the political system. I’m not saying this could
necessarily happen next year, but I don’t see any reason to be excessively pessimistic. We’ll see. – I see that you are impatient
to have one last minute, so can I just give one last minute, particular on that point of, Thomas spoke a little bit of surprises, with political system
can move surprisingly, we might possibly have increase taxation which we could not have
anticipated in 1909. You want to say something about that? Or maybe on the thing that you just addressed now about policy? Because you seem. Not only Joe, but everybody actually. I would like to give a
chance to each of you, one minute for that. Let me see surprises coming. – Let me make just a couple points. One is actually on that chart. What’s interesting is that the U.S., that chart up there, yeah. If I understand it. The U.S. marginal tax rates actually in the middle of the ’20s when we were having a boom of inequality, marginal tax rates came down to at the top to 25%. It wasn’t the growth. The growth of inequality did not have the kind of response that
you might have hoped, to say where are we going. It was actually in the other direction. That reinforces the pessimism that some of us have, particularly in the United
States where we have, some Supreme Court decisions, like Citizens United, and the most recent court decisions. That basically say
corporations are people, in terms of ability to
spend money on politics but not in terms of
accountability for their misdeeds. There’s an assymetry, that they have certain rights, but without responsibilities. There is one thing I do want to emphasize about what Steve said, which is the point that, it’s all the laws, regulations, everything that we do
in the public sphere, from our education
system to bankruptcy law, to actually everything, it shapes inequality in the United States. Once you realize that it’s absolutely every part of the social framework, or the political and social framework, you realize how difficult it’s going to be to change inequality, but you also have the opportunity, because we can start working on a number of different dimensions. It’s not just one instrument, and not just the tax rate, but there’s a whole array of instruments that it also tells us this is not going to be an easy battle. – I think I’m gonna be
the voice of optimism which is a highly highly
uncharacteristic role. God help me. I’m not for sure, but thinking about U.S.
history a little bit. U.S. political history. Thomas, cites Irving Fisher, which is quite remarkable,
to see Irving Fisher who we don’t usually think
of as being a big leftist, giving a speech that would
have him tarred as such today, but the more obvious
reference for Americans is actually Teddy Roosevelt. His 1910 speech about
reigning in great fortunes, was very much, some of you, would be completely off
the political landscape now but maybe not forever, and what’s interesting about that is if your view, the pessimistic view is that the 20th century with its narrowing of extreme inequality was entirely the product
of wars and catastrophes. That in fact Teddy Roosevelt was giving that speech before the wars. In fact, if you read
your Arthur Schlesinger, who I do believe taught
here at some point, at the coming of the New Deal, you find that the New Deal did not spring, did not appear full blown
out of nowhere in 1932. That in fact that a lot of
the political groundwork for the changes for that top up there, that top income tax rate, were laid over several decades preceding, which says that in fact, a democratic political system where there are national ideas, where people do in fact believe in equality of opportunity, and to some extent in true democracy which is undermined by
extreme inequalities of income and wealth. It is capable of reforming itself, even in the absence of catastrophe. Now we don’t know. Maybe our great grandfathers were living in a country that no longer exists, but you have to hope that that’s not true, and that we are capable in fact of, eventually taking on board, that we are becoming a country that we don’t want to be, and doing something to reverse that. – You have a sizeable one up in this one. – I believe in the dialectic. What I mean by that is, following up Joe and Paul. If you think about waves
of egalitarian activity in American history, the New Deal is one episode. The Progressive Movement, which precedes the first
World War and the second one. I’ll put another one on the table. There is a great sacrifice. It was the anti-slavery movement. Why do I put? If you think about it, that’s the most important anti-inequality group in the history of this country. The point is the following
and that is that, historian David Palmer once said his definition of American exceptionalism was that Americans don’t
believe in leveling down. They believe in leveling up. The substantive point is that the impulse for reform will derive from the perception that inequalities of opportunity have reached
unacceptable levels, and that is the case where, not gonna be dead when it happens, but economists and social scientists more generally are going to influence the political debate. – We’ve seen why perhaps the wealth accumulated by Bill Gates is not entirely earned. (audience applause) – I’m afraid we will have
to conclude this session. I really would like to say once again, that it was really a pleasure, to have read Thomas book, which is actually what you can see from the discussions today, is an extremely rich book. You have 200 years of basic economic history of the rich world, and on top of that you have an intellectual and economic
framework, as Paul said, which tries to unify three theories. It’s basically theory of growth, functional income distribution, and personal income distribution. I’m sure that you would enjoy the book, and we have been extremely happy to have Thomas present it here in New york, and very happy that Joe, Paul, and Steven accepted the comment on the book. Thank you very much for coming. (audience applause)