Notes from GV4D4 week 3

• France, 1791, after nobility's fiscal privileges were abolished, a tax on
  estates/gifts was set up
• the actual amount was minor; the real goal was to establish a wealth
   registry which would then allow for the preservation of property rights in
   perpetuiry
• France's wealth inequality has been structurally the same throughout
   history (though the actual numbers have fluctuated due to war, etc)
• in the US, wealth was more concentrated around end of 19th century, catching
  up to Europe
• which worried US economists because they were proud of the fact that the US
   had historically been more equal (how times have changed)
• main reason for high wealth concentration pre-WWI: in low-growth societies
  when r > g, returns to capital will ofc compound
• the Q is: why was r > g? Piketty says it's a historical fact but not
   a logical necessity (taxes on wealth played some role)
• otoh, pure r (once you subtract tax and capital losses) briefly fell below
   g during wars (which reduced wealth ineq for some time)
• so r > g depends on existence of policies/instutitions to regulate the
   capital-labour relation, plus exogenous shocks to capital like war
• r has been historically around 4-5% (pre-losses) which is curious
• dynamics of r & g
• if r > g, eventually capital-income ratio rises to unsustainable levels
• in the long run, this will result in a decrease in r (as the general
   economic environment gets so bad that investment opportunities decline ...
   like if everyone is just dying of hunger or people are getting guillotined
   etc. unfortunately, Piketty never goes into specifics, but it's fun to
   imagine)
• historical changes in laws around wealth inheritance: from primogeniture
   (first son/child) to equipartition
• in the long run, we should arrive at an equilibrium---a Pareto distribution
   whose coefficient reflects r-g
• but that's only true for a specific range of r-g. if r > g by too much,
   then there is no equilibrium: capital's share of income will increase
   without limit (until external shocks, at least)
  • this is a bit fishy as a theory because he's basically including anything
    that doesn't arise automatically from the formulas as an "external shock"
    which makes it almost tautological
• reasons wealth ineq is no longer at Belle Époque levels:
• rentiers in interwar years didn't reduce their expenses enough, thus eating
   into their capital (and not just living off income)
• composition of assets vulnerable during wars (mostly foreign assets, esp
   sovereign debt)
• redistribution of wealth in europe after wars: progressive tax,
   nationalisation, etc
• also not enough time has passed since 1945---ineq can still rise quite a
   bit
• structural changes in 20th ct: governments started taxing capital income
   at higher rates
  • the effect was not to reduce the total amount of private wealth but
    rather to change the structure of it
  • more progressive estate taxes esp in 20th ct France
• if demographic growth is negative, inherited wealth could play bigger role in
  developed countries
• summary: wealth being less concentrated today than it used to be is a result
  of both political institutional choices and accidents