I've read through Part 1, which mainly covers income and growth. The chapter on income and output goes over definitions that he'll use throughout and gets a little deeper into the
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g hypothesis and factor of economic convergence and divergence that I discussed from the Introduction. Some interesting tidbits from that chapter:
For a long time, the idea accepted by most economists and uncritically repeated in textbooks was that the relative shares of labor and capital in national income were quite stable over the long run, with the generally accepted figure being two-thirds for labor and one-third for capital. Today, with the advantage of greater historical perspective and newly available data, it is clear that the reality was quite a bit more complex.
He goes on talk about how the capital/labor share fluctuated during the 20th century, particularly in response to shocks as I discussed up above, with labor having a historically high share in the post-WW II era and capital reasserting itself after 1980.
One of the terms he defines in chapter 1 is the capital/income ratio, which is taking a country's total shares of capital (or wealth, which he uses interchangeably) divided by one year of national income. The result will give you the rough number of years of income comprising the nations capital. For most developed nations this number is between 5 and 6. Nations' capital also tends to be roughly split into two equal parts, residential capital (houses) and professional capital (stocks, bonds, etc). Piketty doesn't spend too much time on this, but Part 2 of the book is going to go through this in more detail.
On convergence/divergence:
None of the Asian countries that have moved closer to the developed countries of the West in recent years has benefited from large foreign investments, whether it be Japan, South Korea, or Taiwan and more recently China. In essence, all of these countries themselves financed the necessary investments in physical capital and, even more, in human capital, which the latest research holds to be the key to long-term growth.
[H]istorical experience suggests that the principal mechanism for convergence at the international as well as the domestic level is the diffusion of knowledge. In other words, the poor catch up with the rich to the extent that they achieve the same level of technological know-how, skill, and education, not by becoming the property of the wealthy.
...
Above all, knowledge diffusion depends on a country's ability to mobilize financing as well as institutions that encourage large-scale investment in education and training of the population while guaranteeing a stable legal framework that various economic actors can reliably count on.
He sources his research that shows domestic capital investment in more important than foreign investment for economic convergence, I haven't looked it up but this seems to make sense as with domestic investment all of the return on capital is going into the national income as opposed to a large share being in the income of another country. I think he's overstating a point here though. The choice in many cases may not be between domestic vs. foreign capital, but between foreign capital or NO capital.
The chapter on growth was more interesting I thought. He starts by sorting out growth into the primary categories of demographic growth and per capita growth:
[G]rowth always includes a purely demographic component and a purely economic component, and only the latter allows for an improvement in the standard of living.
When breaking them down, and also measuring real vs. nominal growth rates on the economic side, we see much lower rates of growth than the large GDP growth rates we often see reported. Pikkety doesn't see this as a problem as he points out that even relatively small growth rates, as long as they are stable, lead to large increases over time due to compound growth factors. Those same compound growth factors are also ones that can potentially lead to more inequality over time:
The central thesis of this book is precisely than an apparently small gap between the return on capital and the rate of growth can in the long run have powerful and destabilizing effects on the structure and dynamics of social inequality.
Circling back for a minute onto demographic vs. economic growth, he notes that demographic growth has a natural propensity towards convergence:
Other things being equal, strong demographic growth tends to play an equalizing role because it decreases the importance of inherited wealth: every generation must in some sense construct itself.
This gets into an interesting comparison of the growth in the 20th century between western Europe and North America, where the explosive demographic growth in the U.S. - both from natural population growth (fertility rates) and immigration - has created a very different economic environment that in Europe. Piketty talks about how in Europe they look back on the period between 1950-1970 as the peak of growth in the 20th century, while in the U.S. the 1980-2000 period is the more idealized point of time. His implication seems to be that demographic growth deserves a larger share of credit for the success of the post-1980 period in the U.S. than is typically talked about,
and when you look at the per captia growth rates, they are quite stable and similar.
