Until Piketty responds effectively to the just-released paper, “Does Housing Capital Contribute to Inequality?
A comment on Thomas Piketty’s Capital in the 21st Century,” the credibility of his argument has been eviscerated.
From the paper:
“In his book, Capital in the 21st Century, Thomas Piketty highlights the risk of an explosion of wealth inequality because capital is accumulating faster than income in several countries including the US…Our work challenges the conclusions of the author…
The author’s result is based on the rise of only one of the components of capital, namely housing capital…‘Productive’ capital, excluding housing, has only risen weakly relative to income over the last few decades…Over the longer run, the ‘productive’ capital/income ratio has not increased at all…
Rent, not housing prices, should matter for the dynamics of wealth inequality…the value of housing capital must be corrected by measuring it on actual rental price, and not housing prices…When we apply this change, we find that the capital/income ratio is actually stable or only mildly higher in the countries analyzed (France, the US, the UK, and Canada) except for Germany where it rose…
When the value of the housing capital is calculated from rent and not from housing prices, any conclusion in terms of inequalities is hard to infer…The diffusion of homeownership is likely to slow or even reverse the rise of inequality regardless of trends…
Our analysis led us to conclude…that long-run trends in wealth inequality are not dramatic…[The] dramatic rise in inequality in the US has little to do with capital…These conclusions are exactly opposite to those found by Thomas Piketty.”