Shi-Ling Hsu

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Emory L. J. Online


Thomas Piketty's Capital in the Twenty-First Century, which is surely one of the very few economics treatises ever to be a best-seller, has parachuted into an intensely emotional and deeply divisive American debate: the problem of inequality in the United States. Piketty's core argument is that throughout history, the rate of return on private capital has usually exceeded the rate of economic growth, expressed by Piketty as the relation r > g. If true, this relation means that the wealthy class'who are the predominant owners of capital'will grow their wealth faster than economies grow, which means that relatively speaking, the nonwealthy will fall behind. But even if we accept Piketty's assertion that this has been a 'historical fact,' why is r > g most of the time? Piketty offers a few economic factors and a few legal rules, but mostly demurs as to why the 'forces of [wealth] divergence' generally overwhelm the 'forces of [wealth] convergence.' This Essay argues that legal rules and institutions exhibit an inherent bias toward some forms of private capital and serve to inflate returns to private capital'Piketty's r. Meanwhile, not only is it more difficult to make economic growth'Piketty's g'keep pace, but it is more contentious. The result is that returns to private capital have indeed commonly exceeded the rate of economic growth.

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