Analysis Piketty's Capital in the 21st Century (Term Paper Sample)

ANALYSIS PIKETTY’S CAPITAL IN THE 21ST CENTURY
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Analysis Piketty’s Capital in the 21st Century  PAGEREF _Toc392854565 \h
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Analysis Piketty’s Capital in the 21st Century  PAGEREF _Toc392854566 \h
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Assumptions used by Piketty  PAGEREF _Toc392854567 \h
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Explicit assumptions  PAGEREF _Toc392854568 \h
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Implicit assumptions  PAGEREF _Toc392854569 \h
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Piketty’s economic approach  PAGEREF _Toc392854570 \h
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Theoretical framework  PAGEREF _Toc392854571 \h
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Methodological assessment  PAGEREF _Toc392854572 \h
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Bibliography  PAGEREF _Toc392854573 \h
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Analysis Piketty’s Capital in the 21st Century
The main topic in the book Capital in the Twenty-First Century by Thomas Piketty is income and wealth inequality in the United States and Europe. The book mainly focuses on the fundamental weaknesses in a capital-based system that has potential terrifying consequences for income and wealth distribution across the globe. Piketty addresses the issue of the ever widening gap between the rich and the poor in the present century. He notes that economies are growing slower than returns to capital making the rich become wealthier while the rest of the population struggles. Piketty also notes that this equality could soon become unsustainable both economically and politically if action is not taken.
The principal metaphysical concept addressed by Piketty is Capital. He focuses on the flaws of imposing tax on capital as used in the current economic system. Although there are numerous definitions of capital, he uses an open definition so as to refer to it as wealth. According to his definition, properties, stocks and cash assets owned by people constitute capital. Though Piketty has a different view the capital-based economic system from Karl Marx’s, he confirms that Marx correctly worried about it. This concept is value-laden due to prediction he makes. He foresees that focusing on capital alone in Europe and the US could eventually lead to a state where the economy is controlled by those born in rich families. The book notes that under the current dispensation, inherited wealth (capital) grows faster than earned wealth.
Piketty uses empirical evidence to describe his views on capitalism. He gathers data from thirty countries regarding the evolution of capitalism for the last three-hundred years in these countries. He therefore focuses on analyzing the evolution of capitalism as his main research strategy to describe his views on inequality. According to Piketty, “the evolution of inequality is not a natural process” hence the growing inequality can be controlled. Therefore, the central question addressed by Piketty is the practicability of basing the economy on capital and avoid a situation where a minority few controls majority of the population. In his assertion, reverting back to the Downton Abbey, a system used a century ago could be the only feasible solution.
Assumptions Used By Piketty
Explicit Assumptions
The major explicit assumption in the book is the widening gap between the rich and the poor. Piketty describes how the current economic system results to inequalities concerning distribution of wealth and income thus widening the gap with time. He describes how returns on capital exceed the rate of economic growth worsening the situation. It is also important to note that monopolist do not artificially inflate these returns since it is the natural functioning of efficient markets. Therefore, extraordinary measures would be required so as to reverse this system.
The second assumption by Piketty is that growing inequality could be unsustainable for the economy. With the minority controlling majority of the wealth, the capitalist system could become obsolete in future. Piketty notes that growing inequality in Europe was only cut short by the two world wars. However, there was little destruction in the United Kingdom during these wars hence the gap in Britain in wider than the rest of Western Europe. Before the wars, European economy functioned through dominance by a few who inherited family. The war broke this tyranny resulting to a relatively fresh start. He predicts that Canada and the United States could suffer a similar predicament where the minority with inherited capital controls the economy.
The third assumption is that the best solution to this is a coordinated effort to tax wealth. Piketty notes that taxing capital results in unequal rates of taxation for different individuals since only income is taxed. In essence, taxing income results to the rich paying a negligible percentage of their wealth as tax while the poor pay most of theirs. Taxing wealth would therefore every person to pay at the same rate hence to rich would contribute more. This would enable everybody to gain wealth at the same rate.
Implicit Assumptions
Piketty uses various implicit assumptions to describe the disadvantages of capital in the present century and the possible solutions. First, Piketty describes how a tyranny of a few wealthy individuals dominated Europe in the early nineteenth century. He goes further to predict that a similar predicament awaits the US and Canada. The implicit assumption here according to Piketty is that the future will look like the past. Piketty explains that then current system only benefits the wealthy minority rather than the whole population.
Secondly, Piketty says that inherited wealth grows faster than earned wealth. Here, he assumes that most of the rich people in the world got their wealth through inheritance. However, other commentators are against this theory since the present day super-rich got their wealth from personal hard work. Another implicit assumption in this theory is that the wealthy families today will dominate the world politically and economically in future. This assumption is flawed in the sense that political influence and economic power is difficult to predict due to issues like revolutions and depressions.
Piketty’s Economic Approach
Piketty uses a normative approach in presenting his ideas. Normative economics encompasses subjectivity as part of its analysis. In his analysis, Piketty states that it is easier to get wealthier with inherited wealth than earned wealth. This is subjective because of the current levels of innovation and entrepreneurship result in wealth through hard work. Moreover, he is subjective in noting that the wealth minority will dominate the majority both politically and economically.
Normative economics also depends heavily on theoretical scenarios and value judgments. It seeks economic fairness and what public policies and economic ideologies ought to be. In his book, Piketty focuses on the failure of capitalism therefore describing how the system should function. He also proposes a wealth taxation policy which would be fair in ensuring that the poor to get over exploited. In essence, Piketty focuses on how the system should function rather than how it actually functions. This approach constitutes a normative approach.
Theoretical Framework
“Capital in the Twenty-First Century” is linked to two main ideologies which from its theoretical framework. First is the sustainability of capitalism. According to this book, capital would be unsustainable in future since a minority would own it due to the widening wealth gap. This concept is similar to Karl Marx ideas regarding capitalism. Marx questioned fundamentals in capitalism since the minority controlled the majority. From the book, Piketty has a different definition of capital, but like Marx, he predicts an unsustainable future for this concept. His wealth taxat...