Capital in the 21st Century Review: Chapter 3 (part 2 of 2)

Chapter 3, titled “The Metamorphoses of Capital,” examines how the nature of wealth has changed over the past couple of centuries.
I broke the chapter into two parts, where part 1 focuses on private wealth, while the part 2 focuses mainly on public wealth and debt.

Thomas Piketty starts off by defining public wealth as falling into two categories:  assets which are owned by the government and used by itself or the public (buildings, roads), and “financial” assets of the type that individuals also often own (for example, partial ownership in private corporations, or foreign assets).  The line between these categories is blurry, as government-owned firms can be privatized.  Similarly, it can be extremely difficult to precisely price a road or a park.

However, Thomas Piketty’s key point is that net public wealth (assets – debts) is very small compared with private wealth.  “At present, the total value of public assets (both financial and non-financial) is estimated to be almost one year’s national income in Britain and a little less than 1.5 times that amount in France.  Since the public debt of both countries amounts to about one year’s national income, net public wealth (or capital) is close to zero.” (page 124)

Table 3.1

Since as the table above shows, net private wealth is almost 6 years national income,  “Regardless of the imperfections of measurement, the crucial fact here is that private wealth in 2010 accounts for virtually all national wealth in both countries:  more than 99% in Britain and roughly 95% in France, according to the latest available estimates.  In any case, the true figure is greater than 90%.”

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Capital in the 21st Century Review: Chapter 3 (part 1 of 2)

Chapter 3, titled “The Metamorphoses of Capital,” examines how the nature of wealth has changed over the past couple of centuries.
I broke the chapter into two parts, where part 1 focuses on private wealth, while the second part focuses mainly on public wealth and debt.


When Horore de Balzac and Jane Austen wrote their novels at the beginning of the nineteenth century, the nature of wealth was relative clear to all readers.  Wealth seemed to exist in order to produce rents, that is, dependable, regular payments to the owners of certain assets, which usually took the form of land or government bonds. (page 113)

Of course, Thomas Piketty acknowledged that even at that time there were businesspeople, as well as owners of overseas plantations (yes, including the slaves there) .  But those were a definite minority.

Here’s the graph which really defines the chapter:

Figure 3.1

France follows a similar pattern.

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Report back from the IAES conference (part 3)

Saturday culminated with a plenary symposium:  “Perspectives on the Post-Crisis Financial Reform in the U.S. and Europe.”

The first speaker, Dr. Robert Eisenbeis, spoke about the three banking crises of the past century.  Two of them I was familiar with:  the recent one (epicenter 2008) and the one that unfolded during the Great Depression (1929-39).  He added a third crisis, the bank and Savings-and-Loan institutions failing during the 1980s, though noted that this crisis was a “slow-burner” that spread over many years and didn’t put the economy into recession.



Note above the large differences. Blue = unemployment rate  Green = Inflation, Red = GDP growth rate.

The recent crisis most resembled the Great Depression, hence its nickname, “The Little Depression.”

Each crisis had its own causes for failure:  in chronological order, overinvestment is risky assets (notably stocks), high inflation of the last 1970s reducing the real value of their outstanding loans, and the housing bubble combined with financial derivatives.  Crises played out in different ways, as did the federal response to each crisis.  He was less impressed with the partial-solutions (the Dodd-Frank bill) to the more recent crisis than with the more robust solutions to previous crises.

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Report back from the IAES conference (part 2)

The conference in general seems very slow-paced.  There were 15-minute breaks between sessions, despite the fact that all events were on one floor of a moderate-sized hotel–a definite contrast to Berklee giving us all 10 minutes to, in some cases, walk several blocks!  We also got a 105-minute lunch!

After the first sessions was the Distinguished Address:  :Brazil in Transition:  Beliefs, Leadership, and Critical Transitions” by professor Lee Alston of Indiana University.

The talk brought back echoes of the excellent book Why Nations Fail.  He spoke of the importance of institutions in a country, that the elite always wants to set things up in their interest and preserve a dysfunctional status quo, but that every now and then you can get a “virtuous cycle” in which reforms beget other, stronger reforms.  The speaker gave a lot of credit to Cardoso (1994-2002) for starting real economic reforms and Lula (2002 – 2010) for continuing them–extra important as they were from different political parties.  He was a bit more skeptical of Dilma (Lula’s successor), but was very much “wait and see.”

Brazil poverty

(Note that “GINI coefficient” is a measure of inequality.)

Overall, Brazil has been getting a lot better over the last couple of decades, with inequality, instability, and poverty both falling and economic activity rising.  The speaker also pointed out that under president Lula the limited budget went mostly toward education (“human capital”) rather than infrastructure (“physical capital”).  In the speaker’s view, this will pay off down the road.  I hope he’s right!  I personally wonder if more could have been done through higher taxation, but in any case gradual improvement beats stagnation or decline.

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Report back from the IAES conference (part 1)

The International Atlantic Economic Society held its 80th biannual conference October 10 and 11 in Boston.  One thing on my oh-right-now-I’m-full-time to-do list was to go to a professional conference, and this one was close by, so it seemed like a good idea as any despite the high price ($300 or so–ouch!).  The conference actually started up on Friday the 9th, but my teaching schedule made that a non-starter.

Outside a room for one of the breakout sessions.

Outside a room for one of the breakout sessions.


Saturday there were two “concurrent sessions” where we’d choose one of 8+ rooms to hear a group of speakers.  Plus there was a “Distinguished Address” on Brazil’s deveopment in the late morning and a Plenary Symposium on the Financial Crisis in the late afternoon.  Sunday theere were two more concurrent sessions.

Close to half of attendees at the conference were international.  Mostly from Europe, but I spotted people from China, Japan, and countries in Africa.

The first concurrent session I went to was on “Cultural Economics”  Probably my favorite session, the first two speakers were awesome.  The first speaker, professor Marial Khawar of Emira College (NY), had used a huge cultural database developed by anthropologists to look at growth rates as they related to culture.  Her findings were that growth was helped by higher institutional quality, but by lower cultural complexity.  The theory there was that higher cultural complexity meant more stratification and rigidity of social roles, leading to it being harder for people to improve their lot in life, hence less entrepreneurship and growth.  It also reminded me to Why Nations Fail, and its thesis that the elite in any society will try to freeze progress, fearing loss of position.

Next up was professor Julia Puaschunder from the New School (NY), looking at trust and reciprocity and how it affects inter-generational equity, defining the latter as the commonly-held belief that future generations should live lives at least as high quality as our own.  This is a belief shared by all but the most dysfunctional, collapsing societies.  She tried playing a “trust game,” a variant of the Prisoners Dilemma (which I teach in class). In her version people could keep money they were given, or give it to their partner who would get double what they gave.   So collectively folks were best off giving everything to the partner, while individually they were better off giving nothing.  She found a statisticaly significant, though  not particularly high, correlations (between 0.3 and 0.4) between how trusting someone was and how much they supported contributing toward future generations.  Interestingly, similar correlations were seen by people who were trusted and their willingness to support future generations, suggesting that mantra “Be the change you want to see.”


The other two presentations were pretty forgettable, but two out of 4 ain’t bad!

Capital In the 21st Century Review: Chapter 2 (part 3 of 3)

The final part of chapter 2 itself breaks into two parts.  First is an appreciation for what even a seemingly modest amount of economic growth can do.

“In my view, the most important point…is that a per-capita output growth rate on the order of 1% is in fact extremely rapid, much more rapid then people think.” (page 95)

Following this is a bit of math, which invoves putting 1.01 or 1.015 to some power like 30 or 50 and get something really large.  1.0130 = around 1.35, or a 35% increase.  1.01550 = around 2.1, or a more-than-doubling.

Concretely, per-capita output growth in Europe, North America, and Japan over the past thirty years has ranged between 1 and 1.5 percent, and people’s lives have been subjected to major changes.  In 1980 there was no Internet or cell phone network, most people did not travel by air, most of the advanced medical technologies in common use today did not exist, and only a minority attended college.   (page 95)


world per capita output growth

Thomas Piketty points out that the relatively rapid change we see today stands in contrast with most of history.  “A society in which growth is 0.1% to 0.2% replicates itself with little or no change from one generation to the next.” (page 96)   That said, the relation between growth and inequality is a very complicated one.  Thomas Piketty points out that growth can create new inequality as new sectors can make certain people very wealthy very quickly.  (Bill Gates and other tech billionaires are great examples of this.)  Meanwhile, growth also can make inherited fortunes less important, thereby reducing inequality.
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Rae and her sister Parti (who will be featured in the next cat post) were adopted in December 2013.  Unlike our other cats, they were adopted locally through a small no-kill cat rescue group called Whiskers of Hope, which we connnected with via Petfinder, an excellent site used to connect people with animals who need homes.  Also unlike our other cats, we got them as slightly older kittens, a bit over 5 months old rather than 8-11 weeks.

Deb had been reading about how black cats have a particularly hard time finding homes, which is really sad, and we were determined to adopt two black cats.

In addition to adopting two black cats, on behalf of humans everyone I apologize to Bast for our silliness, as black cats are awesome!   First, check out this glamour pose from January 2013:

Rae January 2013

Second, black hair is a lot less visible on clothing, furniture, etc. than lighter colors.  Hence how Deb and I can have 6 cats and not look like yeti.

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Capital in the 21st Century Review: Chapter 2 (part 2 of 3)

Part 2 of Chapter 2 looks at the growth, first acknowledging that worldwide economic growth has been absolutely incredible over the past two centuries, with worldwide per capita income up more than tenfold since 1700.  He adds some qualifiers,

“Basically, the eighteenth century suffered from the same economic stagnation as previous centuries.  The nineteenth century witnessed the first sustained growth in per capita output, although large segments of the population derived little benefit from this, at least until the last three decades of the century.  It was not until the twentieth century that economic growth became a tangible, unmistakeable reality for everyone.” (pag e86-87)

Here is a four minute long video by Hans Reisling which makes much the same point in a rather impressive way!


That said, Thomas Piketty makes an excellent point about growth:

Economic development beings with the diversification of ways of life and types of goods and services produced and consumed.  It is thus a multidimensional process whose very nature makes it impossible to sum up properly with a single monetary index. (page 86)

In economics class I contrast our life to that of a Pharoah thousands of years ago.  We can hear any song we want whenever we want with the press of a button.  A pharaoh might be able to summon any musicians to his palace, but if they were elsewhere it might take over a week before they could return to Cairo and play the requested song.  Other modern products, from computers to telephones to cars to antibiotics to chocolate, where known in the Ancient World.  By contrast, certain things were relatively cheap, or at least cheaper, in the Ancient World:  land, servants, wood from huge old-growth trees.

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Successful Berklee Alumni #4: Gabriella Mastrangelo (formerly Howard)

Gabriella Mastrangelo (formerly Howard)

Gabriella Howard professional



Listen to the interview (approx. 35 min.) or download it.

Graduated in 2011 with a major in Music Business (Entrepreneur Track), Principal Instrument:  Voice

Position:  Senior Administrative Associate at Boston Children’s Hospital.  She intends to stay in medicine, but is about to start a 14-month intensive program to become a Registered Nurse.

Overview:  A few months after graduation, Gabriella contacted a temp agency and did many short-term administrative jobs, which supplemented her income from teaching music & figure skating part time.  After doing those for a few months, she realized she really wanted to work at Children’s hospital.  She found a part-time job on their website, applied, and got it.  Her good work and enthusiasm led to her taking on more hours and converting to full time after about 8 months.


You can see her Linkedin profile here.


Choice Quotes:  “(Certain Berklee classes) taught me professionalism:  deadlines, being cordial and professional, compassionate and understanding with the people you work with.  Those are thing I really carry with me every day.”

“Don’t lose sight of what you really want.  If you do stray away from it, that’s OK.  There are back roads to where you want to end up.  And it’s OK if you find your passions lie elsewhere. ”


See the full index of Successful Berklee Grads.


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Capital in the 21st Century Review: Chapter 2 (Part 1 of 3)

Chapter 2, titled “Growth:  Illusions and Realities,” consists of 3 parts:

– Part 1 defines economic growth, and looks at the “very long run” – literally the past couple of thousand years.  It ends with an intriguing question about what effect growth has on inequality.

– Part 2 looks at the past couple of centuries, looking at per capita productivity growth by sector, and what it implies, and asks if rapid economic growth is coming to an end.

– Part 3 looks at other aspects of growth, and focuses on the 20th Century as a possible anomaly.


Parts 2 and 3 will show up in 2 weeks or so.

Growth rates can be measured an terms of total output, population, and output per capita.  Or, if you wish, size of the economy, number of people, and people’s incomes respectively. One good equation to keep in mind is that, measured as percentages:

(output per capita growth) + (population growth) = (total output growth)  
(You can do algebra to solve for any one of these three variables.  For example, total growth – pop. growth = output per capita growth)

Chapter 2 starts off by pointing out that both population and income per capita growth between year zero and 1700 AD was, on average, extremely close to zero.  (Thomas Malthus estimated 0.06% population growth and 0.02% per capita output growth.)

The reason is quite simple:  higher growth rates would imply, implausibly, that the world’s population at the beginning of the Common Era was miniscule, or else that the standard of living was very substantially below commonly accepted levels of subsistence.  For the same reason, growth in the centuries to come is likely to return to very low levels, at least insofar as the demographic ( = population ) component is concerned. (page 74)

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