Chapter two, Growth, opens with a discussion of population demographics, and what these small-seeming percentages mean over time. It has a rapid series of hard to process numbers, but they are important for grasping the scale of things. After laying out the historical growth rate, estimated at less than .02%, probably less than .01% for the world, he takes us into the aggressive curve of the 18th to 21st century.
Ranging from .4% in 18th century Europe to .6% — .8% in the 19th, to the enormous global 1.5%-2% of the 20th century, leading to a five fold increase of population. Growth was 1.8% world wide when I was born, now slowed down to a still staggering 1.3%. But this is probably an anomaly, and projections put 2030 at .4% and 2070 at .1%, closer to where we were before this crazy train began, with even negative demographic growth in Europe.
After laying out all these demographics, Piketty brings us to the point of the whirlwind tour of these figures: that demographic growth combats inequality by lessening the concentrating power of inherited wealth. (Inflation has also been a leveler — allowing debtors, private and public, to get out of debt more quickly, though this is noted much later in the chapter.) Combining slow demographic growth with slow economic growth further expands the power of the previous generation’s capital, leading to even more potential for concentration. Already, inherited wealth is making a come back after the world wars in Europe, and that could be a leading indicator for the world.
When putting this into a social context, Piketty delves into politics again here and, in my opinion at least, takes the myth of meritocracy out for a good beating. He points out that the idea of superior inherent abilities has been used, time and again and up to the current day IT sector, to “justify extreme inequalities and to defend the position of the winners, without much consideration for the losers, much less for the facts, and without any real effort to verify whether this very convenient principle can actually explain the changes we observe.”
Once again, we see Piketty’s calling card: data or GTFO.
We move on from there to the idea of measuring how much our money can buy us, in terms of purchasing parity, and how hard that is to measure. With not only so many more goods but incomparable goods available through time, what rich and poor means, both absolutely and compared against each other, is a moving target both temporally and geographically.
The one thing that doesn’t change as much in purchasing is services. But, because of that, services are different, moving from a third of the economy up towards 70-80% in much of the world. Just health and education can be 20% in the developed countries, and more than anything are effective at changing our quality of life, and relentlessly expensive.
Bad service sectors can juke the stats when it comes to GDP. Just as a broken window when repaired shows up in GDP as productivity no different than a new window being built, so an ineffectively and overly expensive healthcare systems ups GDP without improving health outcomes, as in the example of the US versus sane countries. (Hey, it’s his book, but still my blog.) This is accounting by costs, and it shows why Piketty prefers account by national income over popular measures like GDP. But these kinds of problems remind us why our numbers over time don’t have many sig figs — they are useful, but not granular.
One thing Piketty doesn’t seem great with is understanding where the environment and its degradation fit into the picture. He talks about the depletion of fossil fuels as a major issue, when in fact the greater danger these days is using what we have.
Chapter two closes with literature — showing Balzac and Austin’s writing reflected such a stable and slow growth and inflation rate that the idea of how much wealth you needed for a certain position in society could be referenced by a number, and serve as an abstract for a strata of society altogether. I think this is a particular and amazing feat, and that he doesn’t quite communicate the strangeness of this stability, a stability that has not existed in living memory. A certain property was a certain income, and came with a certain kit of life. What those things were was knowable and stable for decades, and folks tended to stay where they were in society. Coming as I do, from a country of temporarily embarrassed millionaires, this idea of stability is not only without reference, it’s abhorrent to most of the myths of capitalism that arose in the 20th century after WWI. Before that, it was useful for setting the scene. What a shift this is, that we can’t even remember happening!
From 1914 to 1945, we learned about inflation, monetary policy, and of course technology — and our literature and culture lost their economic innocence, and financial memories.