ROBERT ARNOTT, WILLIAM BERNSTEIN, AND LILLIAN WU
Abstract: Thomas Piketty’s Capital in the Twenty-First Century rocketed to the top of the best-seller lists the moment it was published in 2013, and remained there for months. We believe Piketty’s core message is provably flawed on several levels, as a result of fundamental and avoidable errors in his basic assumptions. He begins with the sensible presumption that the return on invested capital, r, exceeds macroeconomic growth, g, as must be true in any healthy economy. But from this near-tautology, he moves on to presume that wealthy families will grow ever richer over future generations, leading to a society dominated by unearned, hereditary wealth.
As individuals, and as families, the rich generally do not get richer: after a fortune is first built, the rich often get relentlessly and inexorably poorer. The evidence Piketty uses in support of his thesis is largely anecdotal, drawn from the novels of Austen and Balzac, and from the current fortunes of Bill Gates and Liliane Bettencourt. Our evidence— used to refute Piketty’s argument—is empirical, drawn from the rapid rotation of the hyper-wealthy through the ranks of the Forbes 400, and suggests that, at any given time, half or more of the collective worth of the hyper-wealthy is first-generation earned wealth, not inherited wealth.