Yes, says Thomas Piketty…. Inherited wealth has always been with us, of course, but Mr. Piketty believes that its importance is increasing. He sees a future that combines slow economic growth with high returns to capital. He reasons that if capital owners save much of their income, their wealth will accumulate and be passed on to their heirs. He concludes that individuals’ living standards will be determined less by their skill and effort and more by bequests they receive.
Moreover, given economists’ abysmal track record in forecasting, especially over long time horizons, any such prognostication should be taken with a shaker or two of salt. The Piketty scenario is best viewed not as a solid prediction but as a provocative speculation.
But it raises the question: So what? What’s wrong with inherited wealth?…
The bottom line is that inherited wealth is not an economic threat. Those who have earned extraordinary incomes naturally want to share their good fortune with their descendants. Those of us not lucky enough to be born into one of these families benefit as well, as their accumulation of capital raises our productivity, wages and living standards.
Unlike Mankiw, I would have stopped at “so what?” The incessant attacks on income inequality and inherited wealth arise not only from faulty economic reasoning, as Mankiw points out, but also from envy and resentment.
Envy and resentment are found among non-achievers, of course, but they are rampant in the ranks of the affluent. There we find pseudo-academic poseurs like Paul Krugman and Robert Reich, leftist pundits, well-heeled politicos, and cossetted bureaucrats who feast on the spoils of the welfare state. These hypocrites can’t attack “the rich” with a straight face, so they attack “the very rich,” a class that they define (conveniently) to exclude themselves.
That said, I can’t resist the temptation to add to Mankiw’s short list of links to posts and articles that are critical of Piketty’s analysis. Here’s a small sample of related readings:
Richard A. Epstein, “The Piketty Fallacy,” The Libertarian, May 5, 2014
Arnold Kling, “More Contra Piketty,” askblog, May 21, 2014
Scott Sumner, “The Middle Class Is Doing Fine,” EconLog, May 21, 2014
Pejman Yousefzedah, “Facts Are Stubborn Things … As Thomas Piketty Is Beginning to Find Out,” Pejman Yousefzedah, May 23, 2014
Ed Morrissey, “The Perils of Piketty,” Hot Air, May 25, 2014
Tim Worstall, “Why Income Inequality Is Really Very Good for Us Indeed,” The Adam Smith Institute, June 2, 2014
Mark J. Perry, “Sorry Krugman, Stiglitz, and Pikkety: Income Inequality for Individual Americans Has Been Flat for More Than 50 Years,” Carpe Diem, June 5, 2014
For many more readings, see the links at the bottom of “Mass (Economic) Hysteria: Income Inequality and Related Themes.” See also my many posts tagged “income inequality,” and follow the links therein.
(Full disclosure: I am an “unprivileged” child of “unprivileged”parents. I have inherited not so much as a penny. In 31 years of salaried, full-time employment, I earned above-average compensation. My earnings were in the top-5 percent of individual incomes for a few years at the end of my full-time working career.)