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POLITICS: PennAve

The week ahead in economics: France's Thomas Piketty, inflation and Janet Yellen

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PennAve,Joseph Lawler,Economy,Federal Reserve,Janet Yellen,Income Inequality,Capitalism

While members of Congress are out of Washington this week, the French economist Thomas Piketty will be visiting to spread ideas that could become influential both in the U.S. and around the world.

A professor at the Paris School of Economics, Piketty is one of the economists who has helped track the movement of very high incomes in detail -- thereby allowing for the measurement of the rise of the "1 percent."

Now he has written a book published last year and translated into English this year, Capital in the Twenty-First Century, that some are saying could transform the economics of inequality and animate a new kind of left-wing politics.

The nearly 700-page tome reviews income and wealth data from a number of countries over the course of centuries, focusing on the role of capital ownership and inherited wealth in shaping income inequality.

One of Piketty's central claims is that when the rate of return on capital exceeds the rate of economic growth, inequality rises. Although for much of the 20th century that dynamic was kept in check by world wars and rapid technological progress, slowing growth now may lead to a new kind of what Piketty calls "patrimonial capitalism."

He says that if this rising inequality is allowed to continue unchecked, the results could be deep political and social disruption.

Piketty proposes, as a solution, steep progressive income and wealth taxation to prevent a new Gilded Age from taking place.

Branko Milanovic, a World Bank economist, called Capitalism in the Twenty-First Century one of the "watershed books in economic thinking” in a review for the Journal of Economic Literature.

The liberal New York Times columnist and economics Nobel Prize-winner Paul Krugman wrote in the New York Review of Books that "[t]his is a book that will change both the way we think about society and the way we do economics."

And, writing in national review, the right-of-center American Enterprise Institute's James Pethokoukis warned: "The soft Marxism in capital, if unchallenged, will spread among the clerisy and reshape the political economic landscape on which all future policy battles will be waged."

Piketty will speak at D.C. venues including the Tax Policy Center and the Center for American Progress this week. Look for his work to seep into the American political discourse in the months and years ahead.

Also happening this week:

The Bureau of Labor Statistics will update the Consumer Price Index for March on Tuesday morning. The CPI showed headline inflation slowing to 1.1 percent in February, well below the Federal Reserve's 2 percent target. While core inflation -- the less volatile measure of price level changes that strips out food and energy prices -- was higher, at 1.6 percent, any further declines in inflation could complicate the picture of the economy for the central bank, which has said it will defend its 2 percent inflation target from below.

Federal Reserve Chairwoman Janet Yellen will speak Wednesday in New York City on the topic of monetary policy and the economic recovery. It will be her second significant speech as the top American central banker. Yellen's first speech featured the personal stories of three workers hurt by joblessness during the recession -- an unusual departure from typical Fed-speak -- but omitted the relevant detail that two of the people had criminal records. That fact was later dug up by the press.

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Author:

Joseph Lawler

Economics Writer
The Washington Examiner