Friday, March 30, 2018

Friday Feature Book Review: "Capital in the 21st Century" by Thomas Piketty トマ・ピケティによる "21世紀の首都"

This book is the new bible for economics globally. This is not one man's opinion, but the thoughts of a large team of 30 economists. They explain results from a huge pool of data that is presented with patterns gathered from over 15 years of research. The data is from more than 20 countries covering over 200 years of income tax. The most attractive point about this effort, is the clear data seen in new ways so clearly in a pattern. To suspect a theory is one thing, but to see it proven, with hard data, is another. This enlightenment is its genius.

There are 4 parts to this very major volume. The first 3 sections explain the historical evidence of wealth distribution. Recently media call them the 1%, but former US president Franklin Delano Roosevelt, called them "economic royalists". Concentrated power at the top of society. There are many names for the same people at the top of any economy. This is not only about the US today, but many rich and successful countries in modern economic history. 

Over 100 years ago, in France, during the "Belle Epoque" the comparison was clear. It was a society that valued equality among its citizens, but in fact, was really run by wealthy families, mostly inherited fortunes. What a society says it values, but then supports differently or economically, is what this great project explains so well. This is not one man's opinion or vision. It is an explanation of large patterns from large amounts of people over recent history. A kind of mirror to society, of what economic trends have taken place, and their impact.

At the core, wealthy families can grow their assets at roughly twice the growth of the local economy. If a country rises by 2-3% in economic growth, then its rich families should be able to expect 4-6% growth in income. Not all multi-generational rich families succeed, but most do, and the data proves this with a lot of clear evidence. The rise of Family Offices globally, is a good reflection of this trend. It is a high growth part of Private Banking, and is interesting food for thought economically from several angles.

The conclusions in part 4 are more difficult to accept for some. However, when it comes to choosing what is best for any society, how do you value the trade off? Ultimately, is it better for a small amount of tax from the top 1% be used to help the bottom 20% of the same society? The impact on this bottom would have a huge impact on the quality of life for all levels of the same society. 

If this more balanced redistribution has benefitted the quality of life in Europe, should other regions follow? The bottom poor segments of any society can benefit greatly from government programs, especially health care. As they are a really "working class", being healthy doing these tough jobs means better economics for all. Can the US and other countries see the full value to follow this path themselves? By having a more comfortable poor strata of society, then the middle class and rich society benefit as well. Could this be the best way to really live in a "win win" world?

The Top 4 Takeaways from this book that impact any reader are:

1) The data seems to show that rich families can benefit from higher income at twice the rate of any economy. 
2) Rich families often create a family office to grow their wealth long term. This trend is a strong one, and can often grow at twice the rate of the local economy. 
3) By having a healthy rich class that is kept strong economically by a family office, more charity support and medical research can be funded to help all levels of the society.
4) The 1% are not just a US concept. All successful societies are dominated by the few at the top. The challenge is redistributing wealth more widely for all.

What I wonder most is has this often been the case over very long periods of time? Is it just modern history, or all human history that this can impact? Is this the real best norm for all human societies over the last 5,000+ years since Mesopotamia? We only have 200 years so far. It is too bad that such data longer sets would be impossible to find, I would now love to read it. At over 700+ pages of text, there is too much to discuss in a short book review. This is a huge intellectual, tasty meal of data, to fully gorge on should you have the time and desire. Highly recommended without hesitation!

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