Extrapolating a single, small downtick as a reversal of a trend? That's honestly pretty sloppy, Noah. You, of course, have qualified your thesis with a "might," but the tone here is still a little too much one of vindicated optimism for a case that's actually pretty weak.

Look at the inequality graphs you shared. Were they smooth lines trending upward without interruption until now? You could have taken a slice out of the same graphs at 2001-03 or 2007-09, where inequality fell far more dramatically (due to recessions/bear markets), as "evidence" of a reversal, too. And yet you didn't. Because you know that the *secular trend* continued right after both declines, didn't it?

Nor did you note the similar-sized declines in inequality during the early 90s. Because, again, they were just temporary blips in the super-cycle of increasing wage/wealth inequality from the 1970s through now.

Now, aren't we now in a similar such (at least technical) recession?

Conversely, what if you had written this same essay between 2020-21? I didn't hear that much about Piketty then, either. Did you? Despite the fact that inequality by some measures shot up faster than anytime in my lifetime. A ripe moment, especially, for "r>g!" Maybe Piketty's relative absence was because there were certain other things for Twitter people to talk about at that time, and not because his thesis was discredited or overstated by reality (quite the opposite)? Maybe in 2022, when inflation and the largest war in Europe since WWII became the primary concerns of the commentariat, we also have had other things to focus on? Maybe our attention is somewhat capricious and not meritocratic? (Did we talk about Climate Change much? Does that mean it's no longer happening?)

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Workers getting some more non-real-inflation adjusted hand-to-mouth wages is not a real case of "inequality decreased". Especially with all kind of accounting tricks to hide the real situation on the ground.

This sort of "drop of inequality" is like someone like Musk makes 500 million on a bullish stock market rumor and losses 500 million in a falling market - in a day. Did their wealth and standing in society actually change in any relevant way?

The actual wealth inequality remaining is huge, greater than any time in US history, and still there. Not to mention that this "reversal" comes after a period of unprecedented profits...

Even if a two-billion-aire becomes a mere single-billion-aire because of the stock market, they're still above any imaginable economic related hardship, economically sorted out for 10 generations of progeny, with dozens of ultra expensive tangible assets all around the world, with diversified portfolio and property investments, with huge influence on society and politics, and with tens of thousands of people under their direct control (as employee, owner, etc.).

If on the other hand a 50K a year worker gets to 35K a year (or gets unemployed for a while, or has some medical issue or such), they have to severely downsize their life, their kids education, give up the mortgaged house and rent, or even become homeless, even dead because of lack of medical coverage, the hardship might break their family, end them depressed, and worse. Not some theoritical point: happens to millions every year. Most Americans can't even afford to have a spare $1000 for an emergency.

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I’m biased as someone who was raised middle class and is now close to 1% in earnings and net worth but I’m not convinced inequality is definitely a bad thing as long as the floor is high. Is anyone better off because Musk has lost $133B in stock valuation this year? Rich people getting richer has never bothered me. Child poverty and crime related to underdeveloped communities and racism does bother me.

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Great post, Noah. Two figures brought me, late in life, to economics: Piketty and Robert Solow. The first I even attempted to read in French during business travel in the early 2010s. The second makes me want to ask about a contested word in economics: "instability."

Growth theory emerged out of depression era musings about business cycles and economic instability (Roy Harrod) and anxieties in the US around achieving "full employment after the war" (Evsey Domar), with Solow intervening in the (more optimistic) 50s to point out that the long-term growth story suggested a more reverting-to-growth-trend kind of stability in industrial economies than the earlier writers imagined. The growth trends he described were composites of immense, ongoing, productivity-enhancing structural change (driven by technological improvement).

Post-Keynesians (and leftist historians and social thinkers), on the other side, continued to pound the instability drum, pointing to shocks and crises, showing more interest in the unemployment rate than GDP, and emphasizing the precarious side of the "Great Transformation," both nationally and internationally. Eric Hobsbawm, in a very late interview, spoke of the "last 20 or 30 years, which have been globalization under the sign of uncontrolled free markets, have produced not only inequality but also enormous instability: rapid booms, dramatic slumps, and transformations, unpredictable and rapid."

My question is whether there is anything tangible behind the instability/stability argument beyond this left/mainstream split or a glass half-empty/half-full take. Maybe between economists and non-economists (especially journalists) it has something of a generalization vs particularist flavor. But is there any common working definition of economic stability or instability? I've not seen it.

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has anyone studied impact of increased job-hopping on productivity and by extension job market tightness? anecdotally i work in a field where new hires are basically useless the first 6 months (at least) and only reach peak productivity a couple years after starting. Having more churn hurts a lot in such a scenario and forces hiring even more people which creates more job market tightness and job hopping etc. May not be representative maybe lower-wage jobs ramp up much faster dunno.

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I'm not a Piketty fan, but this seems like grasping at straws even to me.

From the graph here: in 1985, the bottom 50% held just 2% of the wealth in America. In 2022, they hold about 1.5% of the wealth in America. In 1985, the top 10% held 63% of the wealth in America; today they hold 70%.

While the last few years have been a welcome shift in the right direction, we must not use that to obscure the multi-generational reality of falling living standards for the vast majority of our fellow citizens.

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You conclude by:

"this demonstrates not the fundamental instability of democratic capitalist systems,

but their fundamental self-correcting stability."

Do you really think capitalism will last forever?

Consider the following story of market societies development cycle in six steps:


Markets emerge in an equitable setting and

grow by creation of institutions that

secure easy access to broad groups.

The opportunities of market exchange push

up economic growth and well-being as long as the

fruits of growth are fairly evenly distributed.


As markets become dominant - especially the

markets for land, labour and capital -

inequality grows in a slow process as

ownership of land and capital concentrates.


As inequality grow, economic growth initially continues,

but to a lesser degree get translated into broad well-being.

Purchasing power stagnates for large parts of the population.

Shrinking demand and declining profitability

shift investments to financial markets away from productive sectors.


Wealth is instead used to acquire political leverage through

patronage and buying political positions.

Through their dominance in financial markets and their role

as creditors of the state

the wealthy acquire key positions in the fiscal regime,

bureaucracy and finance.


Over time markets become less open and

equitable, through both large wealth owners’

economic weight and their ability to skew the

institutional organization.

Productive investments declines and the economy stagnates.

Economic inequality rises further,

feeding into growing political inequity and social unrest,

resulting in coercion, rebellion and breakdown.


After breakdown the process starts to build up anew from a position

of more equal distribution of wealth and power.

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Jan 2, 2023Liked by Noah Smith

Impressive work. Thanks for writing this. Loved this and will take it to my notes. I may be a socialist, but I agree with you.

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It's hard to accept that inequality is going down in any meaningful way since the divide is so great, to begin with. According to the EPI, in 2020, top CEOs earned 351 times more than the typical worker. CEO pay has increased by 940% since 1978, whereas typical worker pay has increased by 18.1%.

Capitalism excels in telling producers what goods are in demand and at what price levels. This allows for an efficient distribution of resources and quick responses to market changes. Capitalism fails at the distribution of income - where a few are extremely wealthy, but the majority work paycheck to paycheck.

This unequal distribution allows a small number of people to be very rich and exercise political power far in excess of their absolute numbers. Highly paid lobbyists, dark money donations to politicians, and money hidden in off-shore accounts and non-profit foundations further mask the activities of the wealthy.

This wealth and power have subverted religious institutions into becoming political pawns, allowing some states to make voting by certain minorities very difficult, and facilitated the stacking of the Supreme Court with a fundamentalist group of people who are out of step with mainstream America.

Please don't suggest that Supreme Court is only interpreting the law, and it is up to Congress to pass new laws. These unelected people, with their powerful backers, are making the laws that apply to all of us.

The slight downward movement in the spread of wealth is meaningless in the face of entrenched power. Our tax laws are skewed toward protecting the wealthy, and with a limited inheritance tax, the power of the wealthy increases with each generation.

Not only is there a wealth gap, but there is a power gap between the rich and the rest of us. Our democracy is in peril, not only from external enemies, of which we have some powerful ones but from within by people who only care about their own positions at the top of the pyramid.

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Interested in your thoughts on the recent book "the Myth of Inequality", admittedly written by a trio of conservatives who are inevitably biased. But the two basic arguments, if correct, seem like they should be part of the mainstream conversation. First it ignores taxation, which given that the vast majority of taxes are paid by the rich, would make a major difference. And second, it ignores the impact of government benefits programs to the poor. Again, for the very poor they probably register as having no income, but that's not really accurate because they receive at least enough benefits to stay alive if not prosper. Anyway, not sure if this is true, but it does seem disingenuous to ignore if true.

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Have you seen Brazil's per capita gdp ? It's almost half what it was in 2010.

Lula was in tears tonight recounting people holding signs "please help me". in 2022.

I loathe neoclassical economics, and the psychopaths at the IMF and World Bank who oversee all this misery.

Sleep well.

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I don’t know if the diagnosis of Piketty was totally wrong, the US had a coup de etat, you know? It also had an orange monkey due to votes of poor white people. So did the US have a crisis? Yes! Was it because of inequality? I don’t know, but my gut feeling is that inequality played a part indeed.

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I never understood Krugman's willingness to defend the Piketty thesis.

This is literally the guy who predicted the Asian financial crisis (and was ridiculed for it by people like Alice Amsden) because he saw that constant growth in capital per worker was unsustainable: at some point, the marginal increase in depreciation costs eats up the gain in labor productivity.

So why didn't he call out Piketty for completely ignoring depreciation?

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There's a massive blindspot here in that you haven't mentioned the largest economic stimulus package ($1.9 trillion), way larger than Obama's post-2008, which at the time was unprecedented and shockingly large. A more realistic narrative would be that Covid has forced Western governments to intervene massively in order to support the stability of the system, which can barely be called capitalist anymore (definitely not "laissez-faire"). A more interesting approach would be to consider what might have happened to inequality without covid and the subsequent interventions. There's no evidence to suggest it would have reduced without government intervention (though of course it's possible that in this counter-factual scenario progressives may have won the argument and obtained substantial intervention in order to reduce inequality, even without covid as the driver).

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I am glad that you mention towards the end of the post that this could ultimately be a result of one of those extraordinary forces in action especially with COVID-19 recession and the sudden overheating of the economy. This could ultimately be a temporary trend, even if it extends to over a decade of no major growth in inequality. Hard to believe this, in any way, is going to show us that inequality is meant to decline or the r>g is not going to hold in the long-run

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I hope that Thomas Piketty’s books (his 2nd volume is interesting too) will be a part of the public discourse, even if inequality has abated for a while. His arguments are strong, built on loads of data, and favor long term thinking.

Perhaps there are natural mechanisms by which inequality is mitigated in a modern capitalist economy. And perhaps we are seeing the beginning a persistent reversal. But we should inoculate ourselves against wishful thinking — in the absence of strong evidence to the contrary, the last few years are just as likely to be a short detour on the path to unacceptable inequality.

We should remember just how dramatic the wealth redistribution of WW2 was. It’s hard to imagine anything like that happening in the natural course of economic growth.

I do wish there was a less volatile measure of wealth than summing current asset valuations. Something like percentage of productive capital owned by the top 1%, measured by the output of the assets (revenue) or the return of the assets (earnings). This would fluctuate with GDP or GDI rather than the stock market, so it would give a different perspective. Maybe this already exists?

Thanks for the article!

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