As we all know by now Thomas Piketty's arresting thesis is that capitalism leads, absent bloody wars and depressions, to ever greater inequality in the distribution of wealth. Further, he says this is already happening and that we are returning to pre-WWI levels of wealth concentrations and that this is a Very Bad Thing indeed.
The slight problem with this part of the thesis is that we cannot actually see such wealth concentration occurring. Which is, as you might understand, something of a blow to the idea. We saw this a little while back when we looked at the wealth in the United States. It is absolutely true that the ratio of wealth to income (or the stock of wealth to GDP, the income of the entire society) has risen and risen substantially. However, that rise is almost entirely due to the stock of private pension saving rising. This has two implications: the first being that we would expect that saving to rise given the much longer time we all hope to spend in retirement now as the result of lengthening lifespans. A 65 year old these days has an expectation of a further 20 or so years of life: far, far greater than was the case a century or even 50 years ago. The second is that, in the US case at least, that rise in pensions savings is in the form of defined benefit pensions: that's the type of wealth that dies with its owner. So Piketty's worry that this increased wealth will be handed down the generations and thereby fossilize inequality just cannot be true.
We've just had the release of the wealth statistics for the UK from the ONS and they are telling us much the same story:
The ONS report on British households’ investments, property and possessions showed that total wealth in private hands in the UK stood at £9.5 trillion in the two years from 2010 to 2012.
That is more than six times the value of all goods and services produced in the country every year, and the equivalent of almost 13 years of total government spending.
That is the rise in the sort of wealth to income ratio that Piketty warns about. From perhaps wealth being 4 times income to rise to as much as 8 times at some point in the future. However, it does rather matter what portion of that rise in wealth is a result of pensions savings:
Despite the recent financial crisis, overall wealth rose in recent years, from £8.4 trillion in the two years from 2006 to 2008. The biggest increase in value came in private pension assets, which rose from £2.9 trillion to £3.6 trillion. Property was worth £3.5 trillion and physical wealth — including the contents of homes — was worth £1.1 trillion.
Recall that, 70 years ago, at that mid-century minima of wealth inequality, there was pretty much no private pensions industry at all. So that £3.6 trillion, the largest portion of privately held wealth, has all been generated since then (almost, but not quite). Which is a reasonable reaction to the fact that people now expect 20 years of retirement not some few paltry ones as of yore. But do also note that that rise is some 2.5 times GDP. Meaning that all of, and perhaps more, the increase in the wealth ratio that Piketty is pointing to comes from that rise in private pensions savings. And this will, in large part, be consumed in those declining years, it's not going to become part of the generational transfer of wealth. Housing might, financial (ie, stocks and bonds not in pensions funds) might, physical wealth might, but those pensions savings aren't going to be inherited.
What we're being warned about, the inevitability of increased and entrenched wealth inequality through inheritance, seems not actually to be happening. Which is, as I say, something of a problem for the original thesis that it is.
It's almost as if Piketty has deliberately ignored the implications of the lifetime savings hypothesis. Which would be an odd thing for him to have done.
