Thomas Piketty Capital in the 21 st Century

It’s ‘the 50 Shades of Grey’ of Economics.

Based on evidence from 30 countries, French economist Thomas Piketty has determined that the rate of return on capital is rising faster than average wages.

What does this mean?

If your income is dependent on wealth, as opposed to work, your rate of return is rising more quickly than those who work.

John is an owner of wealth. He owns block of apartments in downtown Boston which he inherited from his father. The rent he collects has risen in real terms by 10% in the last 3 years. Jim works in downtown Boston as a service engineer. His wages have not risen at all in real terms in the last three years.

If this trend is repeated across the economy, as Piketty shows, the owners of wealth, who are already the richest people, will see themselves lifted further and further from the average worker.

Is this a problem?

It can create perverse incentives.