Thomas Piketty’s book has gone viral—or whatever it is books do—and since I failed comprehensively in blogging the book I thought I’d bite off a more a more manageable task: fixing his graphs. If you’re read Le capital you’ll know the the charts are ugly. What follows is an attempt to make some better-looking graphs which emphasise the Australian data in Le capital, focussing, as Piketty does, on capital accumulation and income inequality.
Another long-range (and, since it goes up to 2100, speculative) representation of the same relationship is below—I’ve highlighted the world’s ratio in blue:
The above is perhaps one of the more striking of Piketty’s graphs, representing part of the β in his ‘first fundamental law of capitalism’: α = r x β: that is, ratio of private capital to national income. The following graph gives instead the share of public (that is, government) capital in national income: I’ve highlighted the United Kingdom in blue to show the vary different trajectories of public capital in Australia and the UK, having started off just about the same (as a proportion of the economy) in1970.
The other part of Piketty’s first fundamental law of capitalism is α, which represents the share of capital income in national wealth. Piketty’s ‘law’ (actually, it’s an accounting identity, true by definition, but like all good accounting identities it tells us something interesting) says that the share of an economy’s income that goes to capital must be equal to the rate of return on capital (r) times the size of total stock of capital as a proportion of national income.
Here is the capital share of income in Australia compared to other rich nations:
What about income inequality, the other major theme of Piketty’s book?
This graph, which shows the share of the top 1% in national income in Australia (compared to other rich countries in light grey in the background) demonstrates that while historically, the share of very high income earners in Australia has been somewhat lower than in comparable rich nations, there has been a definite uptick in the past few decades, a pattern that can be seen again in the graph below, which shows the share of the top 0.1% in Australian national income.