Dan Kervick — Why Is r > g So Significant for Piketty?

In the course of several posts, I have attempted to clarify various aspects of Thomas Piketty’s framework for thinking about wealth and income dynamics, and to lay bare his analysis of the forces of divergence that lead to greater inequalities in income and wealth. One of the points I have made several times is that it is not the bare truth of Piketty’s famous inequality r > g alone that suffices to generate sharply greater economic inequalities, but the way in which significant gaps between r and g combine with other factors – including the rates at which different classes of capital owners save and the varying rates of return these capital owners obtain from their savings – that drives the growth in economic inequality. Piketty is quite clear about all of this, and examines these interacting phenomena in some detail in chapters 10, 11 and 12 of Capital in the Twenty-First Century. 

But it occurs to me that in doing all of this exegesis, I have run the risk of losing track of why the basic inequality r > g is important to Piketty in the first place. After all, this is the formula whose truth Piketty singles for special attention, and tends to invoke in summing up his central results in abbreviated form. So in this post I would like to rectify that omission, and explain the role of r > g.

Rugged Egalitarianism
Why Is r > g So Significant for Piketty?
Dan Kervick