December 2014

Thomas Piketty’s recent book has noted large increases in wealth and the wealth/income ratio.

But there has not been the associated decline in interest rates or increases in wages that one might have expected. Indeed, in some countries, like the US, there has been wage stagnation. If we take “wealth” to be capital, it leads to a seeming paradox, a strong contradiction to the neoclassical model.

At the same time, he suggests that high levels of inequality are a natural aspect of capitalism – with the short period of the few decades before 1980 representing an exception.

This lecture will resolve the seeming paradox, describe the centrifugal and centripetal forces that lead to increased and diminished inequality, show how the balance between these forces has been disturbed since 1980 to lead to a higher equilibrium level of inequality, and explain, however, that this level of inequality is not just the result of market forces, but of policies and politics, some of which have impeded the way that a well-functioning competitive market would have behaved.

The final piece of the analysis links this growing inequality to our financial system and the credit-creation process.