I listened to Thomas Pikettys interview with Russ Roberts. In it, Piketty made this interesting theoretical (and maybe empirical) claim about the economic consequences of destruction on the distribution of wealth which I hadnt really thought of before but which sounds plausible to me. It goes something like: Widespread destruction - like widespread national disasters, maybe deep recessions/depressions, and (particularly) wars (like WWI and WWII) - leads to a substantial reduction in concentrated wealth and allows for higher growth rates following the destruction. The higher growth rates reflect that the country is just catching up to where it was before (i.e. when a country falls 20%, its much easier to recover 20% than it was initially to achieve that height because theres no need to innovate, just to repair). That makes the destruction economically wasteful, but from an income inequality/wealth perspective it means that a wide number of people have the opportunity to take part in that growth, potentially reducing income/wealth inequality and explaining the reduction in income/wealth concentration in the years following WWII. Or, in his math language, wealth (maybe) concentrates when R (the rate of return on capital) > G (the growth rate of the economy as a whole), and destruction makes G much larger in the years following the destruction since the growth is just redoing what was done in the past, leading to a reduction in wealth concentration. I dont really see the ethical significance of it, but that intuitively in broad strokes seems like a plausible theory to me. But, on the other hand, it seems to go pretty strongly against his earlier (accurate) contentions about high growth rates in poorer countries, like China and India. As he offhandedly remarks and as can be seen visibly around the world, its very hard to find countries that have growth rates in excess of about 5% except in particularly poor countries that are just importing already-created innovations, like how China has had 7% - 10% growth rates by just copy-pasting a lot of the innovations that have already been developed around the world in its process of catching up. Yet, in countries like China and India, theres been a pretty wide increase in economic/wealth inequality at the national level despite G being so much larger than pretty much anywhere else at any time in history. This seems to be in tension to me. If post-WW II equalizing resulted from the entry of new people into a process of rebuilding that didnt require too much in the way of innovation and entrepreneurship, then Id similarly expect growth in poor countries like China and India the doesnt require too much in the way of innovation and entrepreneurship to promote economic equality (or at least not increase economic inequality). Ignoring the ethical question of who cares?, I wonder what descriptively explains the different outcomes between the growth of relatively wealthy nations recovering from wars by just copying their earlier developed, destroyed technology and the growth of relatively poor nations by just copying the earlier developed, yet-to-be imported technology from wealthy nations.
Posted on: Wed, 07 Jan 2015 06:02:57 +0000
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