Piketty’s criticism of capitalism

THOMAS Piketty’s book Capital in the Twenty-First Century has had an enormous impact on the debate. Piketty’s main thesis is that in capitalist economies, there is an inherent tendency that leads to continuously increasing differences in wealth. According to Piketty, this increasing difference in the distribution of wealth is not only a concern in itself, but also runs the risk of undermining democracy. In this issue of SNS Analys, the economist Per Krusell discusses Piketty’s criticism of capitalism and the objections that different economists have made to his analyses and conclusions. Krusell draws the conclusion that Piketty’s criticism does not hold but, in the end, he presents some aspects of Piketty’s research that he still considers to be important contributions to future research and debate.

PREDICTION THAT HAS BEEN SUBJECT TO CRITICISM. Piketty’s prediction of increased economic inequality does not build on a projection of those trends that he shows in his extensive data material. No, in contrast, Piketty does mainly build his prediction on theory. The weaknesses of Piketty’s theory are discussed here. The conclusion is that Piketty’s predictions build on unrealistic assumptions and that his main thesis of increased inequality does not hold.

OTHER CAUSES. The economic inequality in the West is a real problem. But the understanding of the driving forces behind the problem requires a different economic analysis than that of Piketty. And thus also other political solutions.

MEASURES AGAINST INEQUALITY. The author argues that investments in education, personal finance education and a flexible labour market are more efficient means of counteracting inequality than the raised capital taxes that are advocated by Piketty.

AUTHOR Per Krusell is Professor of Economics at the Institute for International Economic Studies, Stockholm University. E-mail: per.krusell@iies.su.se.