- Capital by Thomas Piketty
- Difference between wealth and income
- What is capital?
- Piketty's two drivers of divergence
- Is rising inequality necessarily bad?
- Convergence on macro scale
- Education as a force of convergence
- Gilded Age versus Silicon Valley
- Inverse relationship between capital price and returns
- Connecting income to capital growth and potential inequality
- r greater than g but less inequality
- Return on capital and economic growth
- Critically looking at data on ROC and economic growth over millenia
- Simple model to understand r and g relationship
Capital by Thomas Piketty
The video talks about wealth inequality in the U.S. and asks if we're entering a new Gilded Age. It shows a chart of the top 1% and 10% wealth shares over time. The video encourages critical thinking and exploring how policy decisions affect wealth inequality. Created by Sal Khan.
Want to join the conversation?
- How did Piketty measure the wealth in each group (1%/10%)?
Is the fact that the rich in the US didn't pay income tax during the gilded age factored in? Maybe rich people now are even richer, as they have to pay income and inheritance taxes and are still at are similar percentage as during the late 19th century.(6 votes)
- That chart is an attempt to graph relative monetary wealth. Income per se is not relevant to that chart. You can view some sourcing in http://piketty.pse.ens.fr/files/capital21c/en/xls/Chapter10TablesFigures.xlsx - but the bulk of it comes from estimates from the Social Security data it appears.
Note that there is a great deal of guesswork that must be in to something like this. Not all assets are liquid (ie, don't have a readily available price). So if one person own a bunch of cash (completely "liquid" in some sense), another owns Apple stock (very liquid), but a third owns land (not liquid) - comparing the "wealth" of all 3 involves guessing at the price of the land. And if the 3rd person doesn't want to sell his land, the price can't really be tested.
So, you can never get a completely accurate answer to a question like this. Therefore it's hard to even assess how "right" this graph even is.(12 votes)
- If you believe this data (and there's certainly a lot of hand-waving and guesswork in it), then it's interesting to note that the 1920 and 1930 data points both were taken during a recession. And then the 1940 data point was during FDR's Depression. 1970 was also in a recession. All 4 points correspond to so-called inequality going down.
I haven't read the book, but does Piketty note that a booming economy usually creates more inequality, and a crashing economy creates less? (It makes sense on some level, since large-scale wealth is generally tied up in stock equities which devalue during recessions.)(5 votes)
- No. Just the opposite. when r<g, as in a booming economy, inequality shrinks. When r>g as it is in most of history inequality grows. r is rate of return on a capital investment, g is rate of growth of national economy, eg GDP.(3 votes)
- During the gilded age on the graph the two lines exceed 100% when added together. How is it is possible that the top 10% and top 1% could have over 100% of the wealth?(2 votes)
- *facepalm* Thanks Andrew. I made the same mistake.(2 votes)
- How come it says "Top 10% wealth CHare"? Did it mean "wealth SHare"?(2 votes)
- Share is correct, I'm almost positive whoever made the chart into an online photo made a typo!(2 votes)
- Is the "Top Ten Wealth Chare" supposed to be Wealth Share? O_O(2 votes)
- I can almost guarantee that was a typo, the definition of Chare is redirected to Char meaning to burn..(1 vote)
- what's a good definition for the gilded age?(1 vote)
- You may find the link helpful. http://www.digitalhistory.uh.edu/era.cfm?eraid=9(1 vote)
- Hi everyone, I have been reading Capital on Audio-book. Is there a section of this video series that explains the section on minimum wage? ie: What conditions have to exist in order for the minimum wage to create job losses?(1 vote)
- They are rising and falling together. Its not any bit of a difference across the board. For instance. If i was a making 50k a year as a boss and my employee was making 25k a year and we started to make enough money that i could double both of our incomes, so now I'm making 100k and he's making 50k. You can see instantly that the pay gap rose from 25k to 50k. But most people tend to forget that the employee is now making what the boss use to make. Yes the boss is making 100k a year now and is making double what the employee makes, but now the employee is making what the boss use to make. Now if the government did not inflate the currency and devalue the dollar this rise in pay would be worth it. Since our central bank is so obsessed with inflation we never really see what our pay should actually get us. So only people who get a lot of money "the rich" seem to benefit. This man is a short sighted economist who forgets to look how economic policies effect EVERY group. Not just one individual.(1 vote)
- If the following situations will the equilibrium price of wheat decrease and the equilibrium quantity of wheat be uncertain?(1 vote)
- What is the Gilded Age?(1 vote)
- The period from about 1870-1890 where industrialization and wealth grew tremendously, but businesses and politics were known for corruption and a huge gap grew between the poor and the rich, as you can see by the chart.(1 vote)
- [Instructor] Thomas Piketty's Capital in the Twenty-First Century has been getting a lot of attention lately, because it's addressing an issue that matters a lot to a lot of folks, the issue of income inequality and wealth inequality. And my goal here isn't to have a view on the book, to say the book is all right or it's all wrong, but to really use this book as a tool to give you the critical thinking tools you need to make your own judgment. The one thing that is neat about the book is that he makes all of the charts and figures available on his website, so all of these screenshots that I got, these are from piketty.pse.ens.fr/en/capital21c2. And I encourage you to go there on your own and to browse these charts, because there's a lot of interesting charts. But as you do so, always look at them with both an open and a critical eye to see how, what might make sense, or what might not make sense, or what questions start to emerge that you would like to dig deeper on. But let me just start with this chart right over here, because this begins to lay out what might be an issue. So this is wealth inequality in the United States between 1810 and 2010. And the way that they're measuring wealth inequality is the share of top decile or percentile in total wealth. So here they're saying the top 1% share of wealth, that's this line right over here. And then you have the top decile, the top 10% share in wealth. So this right over here, or this data point, let me do this in magenta, this is telling us that based on his data, in 1810 the top 1%, the wealthiest 1%, had roughly, it looks like about 25% of the wealth of the country. And the top 10% had about, looks like it's almost maybe, almost 60% of the wealth of the country. And then we see how this is trending, and it was trending up as we go through the 1800s all the way until the beginning of the 20th century. So this is the 19th century right over here, beginning of the 20th century. And in particular, we have this period in the last few decades, the last two or three decades, of the 19th century, the 1800s, that's often known as the Gilded Age, the Gilded Age, that's associated with fairly dramatic wealth inequality, Gilded, Gilded Age. And one of the questions that this book raises is, are we entering into another Gilded Age? Now, if you just look at this trend line here, it's clear that the wealth inequality isn't as severe as it was in the, I guess you could say, formal Gilded Age. But it's a question of where is this going and is this something that people should be concerned about? So the question is, is this trend line going to do what it did in the last few decades of the 19th century and do something like this, essentially, maybe bringing at least this chart more in line with what happened during the first Gilded Age? Or is it going to do something like this? Or is it going to do something like that? And even if it does do something like this, are we going to have the same realities that we had in the first Gilded Age, where it's maybe disproportionate power associated with that wealth or whatever else? So these are all the types of questions that we should be thinking about. What type of a reality are we going into? What is the data that is making us believe one or the other? And what are the policy decisions on things like innovation, or taxation, or education, that might lead us one way or another? And so, I will dig deeper into all of those ideas over the next few videos in this tutorial.