Transcript

[MUSIC PLAYING]

PROFESSOR:

When it comes to inequality, Thomas Piketty's Capital in the Twenty-First Century says we should all worry about capital, not so much incomes and bonuses. So what does he mean by capital? Well, that's anything that can be owned and that generates an income. That can be housing, land, stocks, or shares.

Now, that idea isn't new. In fact, the link between capital and incomes is very familiar, not least to readers of Jane Austen and Honoré de Balzac. Piketty says that, for 19th century novelists and their readers, the two ideas were used interchangeably. The book's big innovation has been to build a massive data set that allows him to look at patterns in the ownership of stuff, going back centuries.

His research found that, in the 18th and 19th centuries, the value of capital grew faster than the economy at large. So by 1900, the amounts of wealth had grown to around seven times national output in Britain. And since that wealth started off being owned by rich people, that means that the rich pulled away from the rest of us. Now you can see that in the way that the proportion of national wealth owned by the top 1% rose, and the top 10%.

But in the 20th century, things were a little different. First of all, because of war, between 1910 and 1950, the World Wars and decolonization clobbered the European rich. All that stuff that accumulated got, well, blown up, or handed back to other people.

Then, after the war, the recovery was historically unusual, partly because it was all catch-up growth. The capital stock grew more slowly than the economy at large and was more heavily taxed. So owning all that stuff didn't really help the top 1% power ahead. The rest actually caught up a little bit.

Since 1980, however, Piketty thinks that things have reverted to the older pattern. Capital has been growing faster than the economy at large. And since the rich start off owning more stuff, that drives up inequality. So far, so uncontroversial. But Piketty's thesis is that this trend might well continue.

And if the rate at which capital grows remains faster than the growth of the economy at large, then the rich will keep pulling away. And the world could look, once again, like a Victorian age. The rich will be rich because of who their parents are, not who they are. And that's a major public policy challenge.