By David MaddenTuesday, May 27th, 2014
In between grading exam papers I have been wading through the Piketty book. Its a bit like walking through a muddy field. The going is sometimes a bit stodgy, but you eventually get there. There have been many reviews and commentaries on the book – one of the best I think is by Debraj Ray (http://debrajray.blogspot.co.uk/2014/05/nit-piketty.html ), who also wrote what I believe to be the best textbook on Development Economics in 1998, which, alas, I don’t think was ever updated.
Ray is sceptical about Piketty’s “Fundamental Laws of Capitalism”, but believes that the book makes a major contribution in highlighting the concentration of top incomes, arising from both an increasing share of income accruing to capital and also the phenomenon of very high returns to human capital at the top of the wage distribution.
All of this I am sure is very familiar to readers of this blog – Piketty’s must be one of the most reviewed economics books of the last 30 years. But what seems to get less coverage is what has been happening to the approximately 75% of the world population not covered by the Piketty book. A recent World Bank study by Lakner and Milanovic (covered here in Vox http://www.voxeu.org/article/global-income-distribution-1988 ) shows that over the 1988-2008 period, growth for the bottom 75% of the world (with the exception of the very bottom 7% or so) has been well above average, thus contributing to an overall compression of the world income distribution. There have basically been three broad changes in world income distribution over the last 30 years. Yes, the top 1% have seen high growth, while those between about the 75th and 99th percentiles have done relatively poorly – these are the phenomena covered in Piketty. But the vast majority of the bottom 75% have also done relatively well, particularly those just above the median – effectively the Chinese and Indian middle classes are catching up with lower income groups in the OECD countries. The net effect of these three changes is a fall in overall world income inequality. The data stops at 2008 but my guess is that developments since then have probably only accentuated these trends. And further globalisation is likely to have the same effect.
The piece finishes off with some speculation about the political implications of all this, which I am not quite so convinced by. But overall, given that inequality seems to be flavour of the moth these days, it is interesting to get a more global view.