Capital

1. To understand inequality arising out of capital distribution, we need to answer what share of output should go to the wages and what share to the profits. Wages largely comprise the expenses made towards employees/ people and profits would mean the general profits, reserves etc. So how should the income be divided among labour and capital is the question?-A lot can be deduced about inequality in a region once the above distribution is understood.
2. Knowing about other terms related to capital distribution helps to understand these better. -So National wealth is the sum of public and private wealth.- Public wealth is insignificant in almost all countries and external debt of most of the countries is humongous.- Countries own each other in some ways either through external private debt or public debt.
3. The book uses few fundamentals-- Beta - which equals the 'capital - income ratio'. And is also equal to savings to growth ratio- S:G- Alpha- which gives the ratio of 'income from capital to the national income' and is also equal to R times beta- Other things being equal, strong demographic growth tends to play an equalising role because it decreases the importance of inherited wealth, and thus emphasises on every generation constructing something for itself in some sense.
4. Role of inequality from labour-Inequality can result from labor and wealth and a very large reason for growing inequality is the inequality from labor.
5. Role of inheritance in perpetuating inequality- In stagnant socities, wealth assumuated in the past naturally takes on considerable importance. Slow growing economies lead to a significant increase in inequality. -R>G, a situation where inequality increases. In econmies with slow growth rate, it is then the corpus that one already has, detemines how much capital is accumulated over a period; so a slow growth rate means someone not having corpus from inheritance will not be able to create enough return on capital and wont be able to build a corpus; however someone having inherited from past generation, and then in slow growing economy, that corpus gets compounded rapidly even with little inflows and that leads to a severe inequality. Now recall who would be the most affected people during covid lockdown!- For millions of people, the notions of wealth and capital are relatively abstract. It is so concentrated that a large segment of society is virtually unaware of its existence. The 1% who earn the most are not the same as the 1% who own the most.
6. Role of technology- For the same technological growth, different countries experienced different growth. Tech should have addressed this issue in some way, but considering that inequality in US is higher than let's say in India or S Africa, casts doubts that this is simply because of difference in skills and productivity. Is it really that inequality of individual skills and productivities is greater in the US today than in India of recent past which infact has illetrate population. -For the fear of growing to resemble inequality in europe, US in 1910-20 pioneered a very progressive estate tax on large fortunes.
7. Is growth really necessary in face of rising inequality?- I often wonder why do we necessarily need to grow our economies at an above avg. ghrowth rate? If the economic growth falters, it'll be largely those holding bulk of wealth who'll continue to create wealth on it owing to positive return on capital. Those having negligible capital will dry out as they live on day to day income with barely any capital with them. These conditions are typical of an inheritance society. Low growth, capital concentration, rising inequality. We need to sit and assess the extremity of inequality that would have pervaded in ancient India. That's why we need an aspiring economy, that thrives on consumption, that wants to grow year on year and ensure an inflationary growth of the economy. It is therefore necessary to continue doing investments either in the name of decarbonisation, or RE balancing or psp, storage plus coal, gas etc. These activities keep the economy chugging along, adding positive growth to the GDP. Decarbonisation will cost every industry and increase the economy wide costs and thus inflation and thus return on capital. However it is the selective loading of cost- say, like carbon rationing, that growing countries should be wary of. This can become a tool for haves to ensure the have nots never raise themselves or challenge their hegemony.
8. International divergence or Oligarch divergence? - There is a perceived threat of international divergence owing to a gradual acquisition of rich countries by China or by the petro exporters' funds. However, a bigger threat is rich countries being gradually owned by either their or planet's billionaires. As global growth slows and international competition for capital heats up, there is every possibility of top wealth hoarders/owners to be able to increase their wealth far far more than the rest. - The wealthy countries are much wealthier than they sometimes think- for instant the total real estate and financial assets net of debt owned by european households today amounts to some 70 trillion euros. By comparison, the total assets of chinese sovereign wealth funds plus the reserves of bank of china represent around 3 trillion euros. However the wealth is heavily concentrated say in europe and is privately owned and cant be tapped by governments (through tax on capital) for any useful purpose. So oligarch divergence is not only more probable than international divergence, it is also more difficult to combat because it demands a high degree of international coordination among the countries that are ordinarily engaged in competition among each other.
9. Planets financials dont add up- When one adds up the positions of all the wealthy countries, one is left with a slightly negative position, equivalent to about -4% of global GDP in 2010 compared with close to zero in mid 1980s. This negative position should in principle be counterbalanced by an equivalent positive position for the rest of the world. So poor countries should own more assets in rich ocuntries than vice versa, with a surplus of 4% of GDP in their favour. But it is not the case. If one adds up the financial stats for the various countries of the world, one finds that the poor countries also have a negative position and the world as a whole is in a substantially negative situation. The global balance of payments is regularly negative; more money leaves countries than enters them, which is theoretically impossible. Further analysis shows that the net asset position of rich countries relative to rest of the world is in fact positive, but this is masked by the fact that the wealthiest residents of the rich countries are hiding some of their assets in tax havens.
10. Modern redistribution of wealth doesnt consists transfering income from rich to the poor. It consists in financing public services and replacement incomes in the areas of health, education and pensions. Even with the considerable increase in average level of education over the course of twentieth century, earned income inequality didnt decrease.
11. The question "whether to borrow or levy taxes to raise money", is linked to myriad of scenarios practiced by govts. over the long history. It is in general interest to tax. High Public debt can pain the nations. - History offers examples of nations with even higher levels of public debt- in Britain it was twice of two years of national income. Today public debt in rich countries averages about one year of national income or 90% of gdp. Although the emerging economies are poorer than rich ones in both income and capital, their public debt is much lower. Thus question of public debt is a question of distribution of wealth. The rich world is rich but the govts or rich world are poor. Europe has both highest level of private wealth and greatest difficulties in resolving its public debt crisis. - 3 ways to reduce public debt- Tax on capital, inflation, austerity. Tax on wealthy capital owners is difficult but the most sustainable option. Inflation applies on everyone and specially hits the poor since the rich know how to allocate capital to make money during inflation. Austerity is not a good way. People spend money paying off the interest for years and live in austerity because govt doesn't want to spend. Inflation is the fastest way to reduce the value of money and thus reduce the public debt. But with time, the new debt owners will ask for more interest. Thus a closed cycle leading to cascading effect.
12. Now, how to bridge the gap?- Increasing access to markets with adequate safety nets- Why is providing access to markets probably one of the biggest enablers of closing in on the inequality. If the top centile enjoys a 6% return on their wealth while avg. global wealth grows only at 2% a year, after 30 years the top centile share of global capital would have tripled. Top centile would then own 60% of the global wealth. Such an impoverishment of others would likely trigger a violent political reaction. Inequality r>g amplified by inequality as a function of initial portfolio size can give rise to global dynamics of acucmulation and distribution of wealth leading to uncontrolled inegalitarian spirals. Only a progressive tax on capital can effectively impede such a dynamic. - The ideal policy of avoiding an endless inegalitarian spiral and regaining control over the dynamics of acucmulation would be a progressive global tax on capital. It would also expose wealth to democratic scrutiny. Tax net of exemptions means tax at higher levels comes out to be lower than low levels since at those levels more exposure is to capital income and not the income. Progressive taxation is very important. Historically heavy taxes have been levied in rich countries to control inequality. The planet's financial acocutns are not in balance. A global tax on capital would mean compulsorily reporting the capital.

The book ends saying something like this- "All social scientists, all journalists and commentators, all activists in the unions and in politics of whatever stripe and specially all citizens should take a serious interest in money, its measurment, the facts surrounding it, and its history. Those who have a lot of it never fail to defend their interests. Refusing to deal with numbers rarely serves the interests of the least well -off."