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Capital in the Twenty-First Century by Thomas Piketty

A solid book, very much about economics and driven by thoughtful examination of formulas and lots of historical data, but not dense in numbers and equations. He writes with a lively touch, occasionally appealing to novels of specific eras to illustrate how commonplace some concepts and assumptions were.

In a way the primary argument is pessimistic; it took two world wars and a great depression to claw 1/3rd of wealth away from the top decile. Unfortunately, the fundamental laws of interest on capital have counteracted that spread of wealth; income on investments is becoming ever more the key to a life of extreme wealth.

It’s also interesting how corrosive the lowering of top marginal tax rates proved. From the 1930s to 1970s tax rate was so high that there was no reason to fight for a multi-million dollar salary–you’d lose most of it to taxes. That kept the boundaries of what was acceptable as income much closer to normal experience. Between hedge fund loopholes and wealth hiding, the wealthy today have every incentive to demand more and more, since they get to keep most of it. (In fact, they do such a good job of hiding their income and exploiting loopholes, that they on average pay less as a percentage of their income than the $50,000 to $250,000 per year set.)

The final few chapters bleakly examine ways to counteract the bare math of r > g, which is the law that interest grows faster than the economy as a whole. The most important element that he advances is a wealth tax, both for the obvious reasons (to shift taxation from workers to those living off of investments), but also for informational purposes. One of the big drawbacks to wealth taxes, at the moment, is that even governments have little idea of what non-land wealth people have. Even a tiny tax (say 0.1 percent) would get academics, researchers, and the government the information they need to design better, more targeted taxes.

The fly in the ointment is coordination. Unless done on a large scale (the US, the whole EU, or globally), paper wealth is hard to pin to a specific location. If Germany implements a wealth tax, the company stock may all be assigned to Ireland to dodge it. For everything but land, it’s easy to evade a single country’s efforts–great wealth is multinational these days.