This is a follow up on the previous post. To recap, we are in an unprecedented economic situation. The "premium" on savings has flipped negative in most of the developed world. P/E ratios have skyrocketed. Chasing the little yield there is has opened up economies to systemic financial risks. Pensions are chasing yield on underfunded liabilities. Governments are more leveraged compared to historical averages and are dependent on low rates to remain sustainable.
In the middle of these nebulous conditions an economics bestseller hits the world declaring that capital returns are greater than economic growth and the capital is sucking up wealth and exacerbating inequality. Thomas Piketty's book Capital in the 21st Century dissects data across countries extending back as far as the data can go, and he sees the existing wealth dominating the world economy because of "r>g."
Are these theories applicable today? Perhaps this is a bit like "always fighting the last war." Before declaring that this is one of the most important books of the century (assuming everything he said is 100% right and we ignore other viewpoints), we should first look at whether the findings are applicable to today and in the near future. First, the savings premium is gone. Second, the new age of billionaires is emerging and they could hardly be called trust fund babies. The information age has empowered the smart and the lucky to capture huge amounts of value.
Of course, the data gathering and insights are a few more bricks added to the home of economic knowledge. However, perhaps 20 years from now we will look back on Picketty's conclusions as a more sophisticated version of Dow 40,000 and other "if we extrapolate this trend out" type of book.
(Disclaimer: I haven't read Capital in the 21st Century, but then again, the vast majority of people that buy the book don't either. However, I've listened to a few hours of interviews with Thomas Piketty over the last year or so. This is my way of saying yes, I am ignorant, but not completely ignorant.)
In the middle of these nebulous conditions an economics bestseller hits the world declaring that capital returns are greater than economic growth and the capital is sucking up wealth and exacerbating inequality. Thomas Piketty's book Capital in the 21st Century dissects data across countries extending back as far as the data can go, and he sees the existing wealth dominating the world economy because of "r>g."
Are these theories applicable today? Perhaps this is a bit like "always fighting the last war." Before declaring that this is one of the most important books of the century (assuming everything he said is 100% right and we ignore other viewpoints), we should first look at whether the findings are applicable to today and in the near future. First, the savings premium is gone. Second, the new age of billionaires is emerging and they could hardly be called trust fund babies. The information age has empowered the smart and the lucky to capture huge amounts of value.
Of course, the data gathering and insights are a few more bricks added to the home of economic knowledge. However, perhaps 20 years from now we will look back on Picketty's conclusions as a more sophisticated version of Dow 40,000 and other "if we extrapolate this trend out" type of book.
(Disclaimer: I haven't read Capital in the 21st Century, but then again, the vast majority of people that buy the book don't either. However, I've listened to a few hours of interviews with Thomas Piketty over the last year or so. This is my way of saying yes, I am ignorant, but not completely ignorant.)
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