There’s something missing from Thomas Piketty’s argument (contained in his bestseller Capital in the Twenty-First Century) that year-in and year-out the returns to capital exceed the growth rate of the economy as a whole. As Don Boudreaux points out, Piketty offers no explanation for why that must be so:
The entire tenor of Piketty’s volume suggests that he thinks capital reproduces itself, both from the perspective of its individual owners and from the perspective of society at large.
The creativity and fortitude of entrepreneurs, the skillful risk-taking by investors and the insight and effort of managers are all strangely absent throughout Piketty’s performance. These very fonts of modern prosperity are at best assumed to play uninterestingly routine and unseen roles backstage. Onstage, capital—the stuff that is in fact created and skillfully steered by flesh-and-blood entrepreneurs, investors and managers—appears to grow spontaneously, without human involvement. [Pittsburgh Tribune-Review, May 27]
Of course, when you attempt to explain economic conditions—like inequality—you run the risk of discovering that capitalism might not be the problem. For example, here is this point from Robert Murphy:
[…] Mother Jones loved this chart showing income inequality soaring in the late 1920s and in the mid-2000s: Look everyone, if we let the 1% earn too much, it sets the world up for a giant financial crash! But actually what happened is that loose monetary policy drove down interest rates, thereby fueling asset price booms, which showed up as huge income (in the form of capital gains) accruing disproportionately in the hands of the wealthy. It’s not surprising that these Fed-fueled asset bubbles eventually collapsed, leading to the Great Depression and Great Recession. To prevent a repeat, the government doesn’t need to confiscate property from the super-rich; instead the Fed needs to stop inflating asset bubbles. [Rare, May 29]