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“Capital in the 21st Century”, Thomas Piketty’s international bestseller, discusses the driving forces of inequality. The main idea of the book is that r > g is the driving force of inequality. More about Piketty’s book and r > g can be found here. Daron Acemoglu of the Massachusetts Institute of Technology and James Robinson of Harvard University have published a paper stating many criticisms of the book. Below are the main criticisms:
1. They disagree with the claim that r > g is the driving force of inequality. They state that political institutions and technology drive inequality.
2. They argue that Piketty cannot prove the correlation between r > g and inequality.
3. While Piketty claims that there is a positive and strong correlation between r – g and inequality, research points to the contrary: rather, there was a weak correlation, and if anything, is negative.
Piketty criticises these claims, saying that Acemoglu and Robinson’s research was too narrow and did not cover enough time. Piketty also says that he did acknowledge the effect of institutions on inequality and that his research and that of Acemoglu and Robinson are “broadly consistent and complementary”.
Acemoglu says that the focus on the top 1% is too narrow, stating an example in South Africa that contradicts Piketty’s work: the top 20% had the most wealth and power during apartheid, but between the top 1% and the top 20%, the difference is negligible.
Acemoglu suggests looking at the bottom of the distribution instead of the top 1%.
1. Acemoglu and Robinson are well known for writing a book, “Why Nations Fail”, which discusses how it is that some countries amass power, wealth and prosperity, while others do not. More about the book can be read on their official website.
2. Acemoglu’s statement that we should focus on the bottom of the distribution has not been elaborated in this article. One question to consider is why we should look at the bottom, instead of the middle, or perhaps the whole. The usual measure of inequality, the Gini coefficient, anyway looks at the whole of the distribution, instead of the top or the bottom. Another question is whether the bottom of the distribution is the bottom 1%, or the bottom 5%, or the bottom 20%.