Can Thomas PIketty Explain the Relationship Between Population Growth and Inequality?

Income and wealth inequality has become a widely discussed issue over the past few years, due especially to the increasing inequality that has been measured for the U.S. This is a topic that seems naturally to involve economists, since it must have something to do with capital formation and/or accumulation. A new book is out today by Thomas Piketty of the Paris School of Economics that has generated a great deal of pre-publication publicity. I have not read the book, but I have read a couple of blog posts in the Economist and since they too will spread the word, commenting on them seems appropriate until I have a chance to read the book itself, beyond just being able to read selected pages on Amazon. The first article is sort of an Economist "book club" with a series of articles discussing the book, starting with the introduction. The overall thrust of the book seems to be that population growth is good for spreading money around, whereas slow growth leads to a concentration of wealth. 

In his Introduction, Piketty discusses Malthus, but neither he nor the Economist seems to have a good handle on what Malthus actually wrote. Picketty seems to think that Malthus was largely influenced by Arthur Young and was very worried that overpopulation would lead to something like the French Revolution. My reading of Malthus and his biographers suggests a very different view of Malthus' influences and goals. William Godwin was the inspiration for Malthus having gotten into the population issue and his concern about population growth overrunning the food supply was wrong, to be sure, but only because he did not understand that it was possible to increase productivity per acre. His theoretical deficiency on this score actually led to major insights by Darwin, as Darwin later acknowledged. Furthermore, Malthus did not believe that industrialization was anything more than a temporary phenomenon. Piketty's seeming mischaracterization of Malthus is not a good start to his book, in my estimation.

The second Economist blog, from Buttonwood, takes on the population issue more directly. 

But, having written quite a lot on demography in this post, I wanted to explore some of Mr Piketty's ideas and statistics on the topic; in particular the links between demography, growth and inequality. Readers will be familiar with the idea that growth comes from two sources; having more workers and making those workers more efficient (productivity). Roughly speaking, these two forces have been equally important, as this table from his book shows.

What stands out is the way that the last 400 years, and in particular the 20th century, breaks from the rest of history. Both population growth and economic growth have been much faster than before. We escaped from the Malthusian trap.

The results are not very satisfying in terms of explaining how the world works, however, for a number of reasons. First among these is that inequality is partly an economic issue, but is very importantly a social issue. Economists routinely ignore the fact that the economy and markets are comprised of people. Economists have been unable to predict levels of income and wealth inequality precisely because they ignore the deeply social nature of all human societies. Every economic trend can be both accelerated by and taken apart by the socially inspired decisions that people make individually and collectively. For a good popular read that provides insight on this very topic, I recommend a book by Tom Standage (an editor at the Economist, as it turns out) called Writing on the Wall: Social Media--the First 2,000 Years.

This is a complex topic, so like the Economist, I will save more discussion for another day...