Ben Mathew Economics
  • Home
  • Bio
  • Blog
  • Recommended
  • Mailing List
  • Contact

Piketty and The Perils of Asking the Wrong Question

5/31/2014

1 Comment

 
I was at a party recently when the talk turned to Piketty. I brought up the point made by several commentators that if the rich consume rather than reinvest their wealth, inequality won't grow as fast as Piketty claims. After I laid out the argument, it struck me that this point was entirely correct and entirely misleading. That's because the whole debate is about the wrong question and it's easy to get lost.

The focus on inequality makes it seem like it's a good thing if rich people consume rather than save their wealth because that would reduce inequality. But focus on poverty and you reach the opposite conclusion. If the rich save more, there will be more capital in the future, which leads to higher wages (because labor becomes scarce relative to capital), which leads to higher incomes for the poor and the middle class (because wages constitute most of their incomes). In other words, if the rich save more and accumulate more capital, the poor and the middle classes will be better off because of it. That it will also increase wealth inequality seems quite beside the point.

Ask the wrong question
(how can we reduce inequality?) and you get the wrong answer (encourage the rich to save less and consume more).

Ask the right question (how can we reduce poverty?) and you get the right answer (encourage the rich to consume less and save more).

UPDATE 6/2/2014: Andrew Biggs made the same point here earlier.
1 Comment
Karen link
4/23/2019 05:51:13 pm

Great blog post, thanks for sharing it Ben!

Reply



Leave a Reply.

    Ben Mathew

    Author of Economics: The Remarkable Story of How the Economy Works

    Archives

    October 2016
    September 2016
    February 2016
    November 2015
    September 2015
    July 2015
    June 2015
    May 2015
    March 2015
    February 2015
    December 2014
    November 2014
    October 2014
    September 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013

    Categories

    All

    RSS Feed

Powered by Create your own unique website with customizable templates.