A few thoughts and links on inequality and on growth

As ever, there were a few interesting posts to read over the past week and I want to mention two:

Krugman's review of Piketty's Capital in the 21st Century is online at the New York Review of Books. He calls it awesome and writes amongst other things: "It therefore came as a revelation when Piketty and his colleagues showed that incomes of the now famous “one percent,” and of even narrower groups, are actually the big story in rising inequality. And this discovery came with a second revelation: talk of a second Gilded Age, which might have seemed like hyperbole, was nothing of the kind." Tables of this kind tell the story:

He gives an overview of the data collected, the theoretical view that such inequality is caused by the the rate of return to capital being higher than the rate of economic growth, the importance of inherited wealth and the call for wealth and inheritance taxation. When he does criticize, it is about the neglect of super-salaries in the US - where you can still do as well by becoming a hedge fund manager as you can by marrying wealth!

The book is being read and commented on by everyone - you can just try "Piketty " and "Capital" in Google. The Economist has a book club for Capital. The New Yorker summarised it in six charts. Marginal Revolution posted some good comments by Matt Rognlie following Krugman.

Get your Kindle copy here.

In a different vein Dani Rodrik had an interesting post at Project Syndicate blog on the way that developing economies are growing. He writes:

Even in countries that are doing well, industrialization is running out of steam much faster than it did in previous episodes of catch-up growth – a phenomenon that I have called premature deindustrialization. Though young people are still flocking to the cities from the countryside, they end up not in factories but mostly in informal, low-productivity services. Indeed, structural change has become increasingly perverse: from manufacturing to services (prematurely), tradable to non-tradable activities, organized sectors to informality, modern to traditional firms, and medium-size and large firms to small firms. Quantitative studies show that such patterns of structural change are exerting a substantial drag on economic growth in Latin America, Africa, and in many Asian countries.

This has a SA counterpart in Andrew Kerr and co-authors' article in the latest issue of the SAJE. On the topic of job creation and destruction they write:

We also find that larger firms are better net creators of jobs than small firms and that net job creation rates are negative in manufacturing. Our research has important policy implications – particularly for the South African National Planning Commission's 2030 plan, in which new jobs are envisaged to come mainly from small- and medium-sized firms. Our research suggests that this scenario is not likely without changes to policy or legislation.

Food for thought all round.