from our studios in new york city, this is "charlie rose." has dedicatedtty much of his career to intricacies ofhe

economic inequality. he has started the conversation, his book "capital in the twenty-first century" argues that unrestrained capitalism perpetuates inequality. all krugman has called the most important economic look of the year and may be of the decade. the current issue of uber business week proclaims -- of bloomberg businessweek proclaims -- the financial times challenges some of the data used in the book. i am pleased to have thomas piketty at this table for the first time. welcome. a pleasure. explain this. explain the phenomenon about you and this book. >> i don't know. i tried to write a readable book and a readable story. this is a book about the history and commonwealth over

two centuries. and i really tried to make it accessible to everyone. because behind the story of monet you have a literary story. i tried to put it together so been fightingve about inequality for ever. this book will not put an end to that. at least they will know what they were fighting about. >> it adds fuel to the fire. >> a more informed debate. that is the purpose, not to make everybody agree on this stuff. these are complicated issues. the store:ot of perspective on issues which too often we look from our little national angle and we only look

at the past 10 years but they have been with us forever. we have a lot to learn. >> let me step back for a second. you had an extraordinary academic record. you are a young economist. in yoursome training united -- in the united states. i was in the united states as a professor. my training was in france and in london. i started my career as a professor at m.i.t. >> you were different, though. you are not interested so much in the way that economics was being written about, you were interested in history. yes? >> that is right. sees curious, i could not mathematicalg research, economic models.

which everybody else was doing. and then i realized i knew very little about the basic facts about inequality. there was all of this data sitting out there which nobody had collected. hadn american economist started doing that. together the data from the federal income tax in the u.s. from 1913-1948. been doingly had too work because it was economical for historians. after the you to go data you are looking for. >> in a way all i have been doing is to extend this kind of historical work on income to a larger study.

it is easier to get other large volumes of data. >> including records. >> tech records, inheritance records, sometimes dating back to the early 19th century. this is the kind of research that was difficult to do until 10 or 20 years ago. >> the focus was to look attack -- look atr a long tax records over a long time and see what question and answered, where did the income, or where did the wealth come from? yes? >> the big question is when you have growth in the country, do you have a distribution of growth? indifferent groups benefit proportions that are comparable? or is it the case that some groups benefit a lot more and some a lot less? and what determines the distribution of growth? changed since the 19th century.

these were issues people were fighting about in the 19th century, there was the revolution and another crisis and you had a lot of technical innovation. children at the age of six working in mines. people were asking questions. in the 20th century, we started asking a different set of questions. it was a very different period, post-world war ii had balanced growth. early 21stthe century, we are starting again to ask this question about the long run evolution of inequality. with very little evidence. >> running to the conclusion, if we don't do anything about it, is your notion that something will happen like the french revolution in which people really rebel about the system as

it is working? >> that is an example. there are other examples, you can have a nationalist response, you can have wars, discourse against foreigners. find somebody to blame and this generates all sorts of reaction. now let me say right away i that things are necessarily going to become worse and worse in terms of inequality. goingare different forces out at the same time. as you look at the historical data from 20 countries, it could not be the case it always goes in the same direction. so in particular the exclusion of knowledge, education, it can pushing for the

reduction of inequality. we look at that in emerging countries catching up. and you can see that within countries where you have educational institutions, large groups of the population. there are forces in the opposite direction. i know for sure what is going to we happened -- going to happen. that would be stupid. i guess the main message of the financial need more transparency, we need more democratic transparency in income and wealth so that we know how to react and adapt our policies to whether we observed. >> you have a simple answer to all of this, tax on global wealth. >> it does not tell you at what rate.

as you can imagine, this is important. all i am saying if we have low tax rates to begin with, at least you can produce information on how well the different groups are doing. this needs to be how high and low -- how low and it would depend. so right now if we use the type billionaires, of the you have is if you take very top of the distribution of wealth, usually people take these rankings and just say you have a lot more billionaires today. it is a growing economy. is moreyou need to do complicated. at the averagek

wealth of the world population and see how fast this has been , when forbes 1987 magazine started their ranking. it is not the same people. some go out. in a stablere distribution of wealth, it should go up at the same speed of the economy. what we see according to forbes is there going up at six percent per year above inflation. the average wealth is going up at two people. it is three times faster. knows how fast this is going to go. this is evidence that right now we are at a stage of concentration of wealth. there is no natural source to bring this down to a reasonable proportion. >> capitalism will not self correct. >> we need democratic

institutions and democratic transparency to better measure our wealth and how they are doing. let me say right away the forbes ranking may be wrong. it could be we are overestimating what is going on. .eople want to know it would be better if they could imf -- because we don't have a wealth tax because we don't have not amounted exchange of information. progress, but we don't have information about who owns what. we don't really know. point, to repeat what you said, is that the global wealth of the very few is growing much faster than the growth rate of the global economy.

>> my central point is we don't really know but from the evidence, which is imperfect evidence, it seems to be it is rising three times faster. this is just the forbes evidence. i did not invent it. it is just what we have. there is no reason why this should stop anytime soon. it. at some point. of course. go on forever. at some point it will have to stabilize. we don't know where it will stabilize. this is intentionally frightening -- >> if it does not stabilize? >> it will have to. but i think it will stop before that. to not saying we're going return to the extreme concentration of wealth we had in the 19th century. it might be before that because

there are many things going on. education can reduce inequality. i do not believe in deterministic forces that go in one direction. this is a possibility. we need to be concerned about this. >> the time in history was a time it was not so, world war ii and the aftermath. that is the time in which the growth was not as it is today. larger.rowth rate was to the tiny one percent. >> right. this was due to unusual circumstances. a long-run tendency, as they point out in my book, the rate of return on capital tends to be larger than the growth rate of the economy. this is what we have had in the past, pretty much everywhere

until world war i. and then what happened during the 20th century is an unusual combination of forces. world war ii, you had a big reduction in the private rate of return to capital because of capital disruption, inflation, taxation, and then in the postwar you had unusually high growth rate, partially because reconstruction, but also for more positive reasons, which was a population growth. it is important to remember demographic forces play a big role in my book. growth ofg run, the the population is important behind total growth. that is important for the dynamics of inequality because you can see in a country where ,verybody has 10 children

inherited wealth is not going to matter too much. so the new saving is going to matter more. a country where the population stabilizes, where it is about to go down, which is the case in a number of countries right now, then wealth accumulated naturally. there is nothing bad in this logic except the concentration of the inequality of this wealth tends to be larger than the inequality of labor income that we used to be accustomed to in the postwar period. one from theargue, financial times about the data. we will talk about that in a moment. >> sure, we will. some argue your argument is

too simplistic. the rate of return on capital will not continue to outpace growth and wealth inequality will decrease. those who argue that. and some argue that when you look at wealth today, it is not inherited so much as it is people starting businesses and making great wealth. it is not royalty. it is not inherited wealth that is propelling the number of people getting rich. >> two responses. inherited wealth is rising. largen see trust funds, pieces of inherited wealth. sometimes you do not see them as much as you should because it is harder to spot inherited wealth. self-made billionaires want to be seen. sometimes they don't. it is harder to spot them in rankings. i can tell you you can see a

return of inherited wealth. number two, the following, ,hether it is inherited wealth if you have an economy where the top of the wealth distribution, wherever they come from, rice three times faster than the size of the economy, you can see you have a problem. ofs means the concentration wealth at the top is rising very fast. this will have to stop somewhere. >> will it create social tension? saysere is a law that there is a tipping point where the world is going to fall apart. useful only up to a point. when it gets too extreme, then it is bad for growth because it limits mobility and the ability

of new groups and also it tends to have consequences for the political process. unequal access to the political voice. >> one of the loud cries over the last 10 years has been about tax cuts, tax cuts. at a time in which there was rising inequality. >> and when you have rising public debt and at the end of the day we are asking too much for monetary policy. there are limits what you can >> from the central bank. let me step back with you and your research. what were you interested in? some have said to understand globalization, understand world events, that was the central curiosity. impact on theits

way the world organizes itself? interested to get the facts right. there was data that i did not know what i was going to find. >> you had to be in search of a question. >> the big question is simple. between social groups. there has been a big fight over this issue in the 19th century in a way about communism, capitalism, and with a very little evidence. people were fighting, people were making claims, they did not know what they were fighting about. the first object of was to put evidence -- >> whose minds do you want to change? on, you are too modest. here is what you have said in the past. the people who read books

because they influence policy. you want to change policy. of course you do. the mind of change people who read books. >> because they influence policy. is good in itself. it is good to know more about the society we live in and of course to contribute to make it a better society. knowledge isl important. is not only about the fiscal system. inequality is there in the life of people. take the 19th century novels by have wealth everywhere, not only because it matters for taxation, but the life of people. it has an impact on who you're going to marry with, where you're going to go to school.

you can go to -- so it is very important for our society and our social life in general. this is what i'm interested in. >> there are those who say you are the first economist looking to make a significant point who also cites jane austen and other sources. this was part of the way i asked the question to myself. wealth is everywhere. it is asking about the consequences for the life of these people. coursehave this famous d -- discourse where the student really wants to be reached, your degree is not going to be sufficient. your wages not going to be sufficient. you have to marry this young lady even though she is not beautiful.

for a long time, i have been asking myself, is this how a society works or only that balzac was obsessed with his own debt? in fact that was part of the society. >> he wrote for the money, too. >> sure. most societies were based on this patrimonial logic. i asked myself, what has changed? we all feel that today's society is different. the question is why. what in the structure of modern economic growth has made labor income more important than inherited wealth? is this forever? are we sure about that? that makehe forces the relative importance of wealth change over time and across societies?

these are the questions i have been asking because it is important for the life of people and the way they view society. say, i met progress, that we know far too little. we need more data. we need to have more countries -- >> what do we need other than more data? >> we need to think more. providing all of this evidence to elicit more ideas and suggestions about the processes that can explain. >> you are being celebrated around the world, number one on amazon. when you come to america, billionaires want to see you. they say you have given more attention to income inequality and the pope or president obama. it is part of their own mantra as to what is important to them

to change in the world today. here you come in a book that many say people are going to buy but not read. >> that would be fine. i have heard that before. even have people who actually write about the book without opening it. everybody wants to write. >> reviewers don't read it. >> some read it. some don't. i would be sad if people were to put the book on their shelves. i think it is readable. it is a readable book. it is a story about social income.ehind it is a bit long. that is the only problem. on the other hand, it is about 20 countries over two centuries. but apart from the fact it is long, it is readable. >> i assume everything good is

happening to you, but what would you change now? critics are beginning to say the data does not match what he says and he may have modified the data this way or another. i am thinking about the financial times. you say -- >> i say i am pleased the book stimulates debate. >> you would say more than that. they are questioning your methods. look, i want to promote an open and transparent debate. i think we collect -- we will collect more data in the future. >> did you make mistakes? what ia does not say said it's sad because i looked at the data and did not say what i thought it said. the theories i best givent are the

the evidence we have at this stage. the problem with the financial claims is they're making a lot of noise out of very little, to put it this way. at the end of the day, they make little corrections which i did agree with, but most of the it is exactly the same. the only country where they have a different conclusion is for or 20n in the past 10 years. first of all, the book is about 20 countries over two centuries. their only problem is with one country over 10 years. that is not that much. for the recent period in britain, they believe was the quality has reduced over 20 years, which is an incredible statement for a newspaper that is supposed to be specializing in the study of financial methods. if you look at the price of

mansions in london and if you look at any ranking of billionaires across the world, everybody can see that the top of the wealth distribution has been rising faster than the average wealth in britain. if you don't see that, it is sad for them given what they are supposed to be good at. , what we see know at the very top of the wealth distribution for billionaires also applies for people who are rich but not billionaires. millionho have 5 pounds, 10 million pounds. information, you want to take something positive, is that indeed we know too little about wealth dynamics. in a way we know more about 12

one century ago, -- about wealth one century ago, when the data we had is better than what we have today. today we have a big problem with financial opacity. we know too little about cross-border assets. who owns what. is that we can make progress. five years ago, everybody was saying that the bank of switzerland will be with us forever. there have been some sanctions and now we have more financial transparency. the main reason why i am in -- itof the wealth tax can be national wealth tax. >> each country would apply it according to its own circumstances? >> of course. there would be a not a medical exchange of information. with switzerland the problem --

there would be an automatic exchange of information. with switzerland and the problem is they would not give information about taxpayers. so now swiss banks are going to have to send information. this is the kind of inter-governmental operation i have in mind. i have in mind better international coordination so we have a better knowledge of what the wealth is. --in, >> and how it was created. >> and how it changes over time. we know too little about this. i really agree with that. i certainly don't claim the data we have is sufficient. modesty, can iur make this proposal -- he wanted to create a new conversation about global inequality. yes?

and what of thinking you figured out you had to do was provide a new kind of data that supported an idea you believed in. yes? >> there was no idea. >> you did not start with an idea? what did you think about inequality when you started? it might not be there? -- you have inequality. the question is does it increase or reduce over time i had no idea. research isof this that sometimes it goes down. >> only in certain circumstances. >> certain policies. >> as you had in the great depression. government policies and a war. have morees you positive forces. it is not only the war in the depression. education systems, preschools,

that is very important. it goest a story where in one direction. it took me, it is actually at the end of the research when i came to the end of the collection i thought this is a way to explain what we have. >> you and your colleagues looking at the data -- >> 20 colleagues. have gotten attention because of you. you guys went in search of this and all of a sudden you said oh, look atthe shows -- what the shows. could you believe it? did you say i never imagined it would be like this? >> you just have to look at the sequence of scientific tapers and technical papers we have been publishing.

of the people who have contributed over 20 years. when i started working in france and then in britain and in the india,rgentina, and in initially we did not know what we were going to find. of course. i did not know. >> then you found a pattern in every country? >> there are different patterns. you do not have the same evolution. the rise of super managers and very tough managers -- >> who are paid in stock options. >> you see it more in the united states than in europe or in japan. the newport and seven harrington's and labor income is not the same. inheritance and labor income is not the same. in world war i it was a fact

that the concentration of wealth was higher in europe than in the united states. today it is the opposite. so you can see you have change over time. it is not as if things are always the same forever. which areig changes also due to policy and demographic forces. so the reason why historically inheritance has been less importance to the united states is simply because of growth. is this going to last forever? we don't know. the population used to be 100,000,100 years ago. -- 100 million 100 years ago. whatever happens to the democratic forces is going to have a huge impact on the

inherited wealth and labor income. comes to the relative importance of inheritance and labor income, you see influence very easily. ♪

>> i don't know the answer to this question, had no one -- why this book? why you? was that your method of analysis? did no one ever think to look at the question you were in pursuit of and support it with data in the history of economics? was it simon? started doing this historical work in the 1950's. what is really new is what we have been doing thanks to modern information technology. we have been able to collect much larger volumes of historical data. that is largely thanks to the technology. he had to do everything by hand.

that now that is the cold war is over, it has been over 20 years, when i started working, i belong to the fall of theith the berlin wall. so i am the first post-cold war generation, if you want. for my generation, we have -- it is easier to open the debate of inequality. during the cold war, maybe it as more difficult to have quiet debate or a conversation. i am not sure it is easy today. at least the financial times is accusing me of many things, but not of supporting the soviet union. that is something. that is progress. >> accusing you of playing with your data. >> i have responded to that. >> fair enough.

also what is interesting is that if you look at the future, you believe monetary policy and the federal reserve, that is not the solution. what you have to have is a dramatic change in fiscal policy. which means government action. yes? too muche been asking of monetary policy. it is easier to create billions of dollars in one day, or in one second, then to write the tax code. the problem is that sometimes you print all of this money and you don't know what you're going to do with it. sometimes you actually contribute to a set price and some people get rich fast. so with least fiscal policy is more complicated. you have congress members, parliament, it is complicated to

get all of these people to agree . at least when you have a tax rate for different income groups, you have a better sense of who is going to pay what and you have a better distribution takes.burden that it >> whose economic model has served his people best, or better? france or the united states? >> there is a lot to learn -- >> come on. come on. >> there is a lot to learn from every country and from the united states, europe. let me give you two examples. united states has a lot to learn from europe when it comes to insurance system. health coverage. it costs less and provides better health and you have universal coverage. the university system is working

better in the united states. >> the institutions of higher education? >> at least to the united states has been more efficient at producing top schools. -- have a problem of it is interesting when you look at the top 200, top 500, the number of your p and universities is higher than the universities. in this country you have 800 universities. the top is extremely good. but the average in the bottom is not so good. this is creating a problem because you want to invest in education of large groups of the population. but i think in terms of university systems, europe has more to learn from the united for the top institutions. i really believe this. if you come to progressive

taxation, it is important to remember progressive taxation of income and inherited wealth was invented in america. the united states is the first country that experienced large progressivity. at that time the united states did not want to resemble class ridden europe. they did not want to become an equal. the transatlantic story between the united states and europe is a complicated story. both sides have a passionate relationship with inequality. there's a lot to learn from both sides. >> what you say is that you are worried about patrimonial capitalism controlled by financial dynasties. what you say. >> that is a possibility. it depends not only on our policies, but our demographics. it depends on many things.

>> do you recognize, this is happened before, people say if taxation is consistent for it, -- is confiscitory, you eliminate jobs. even though your book suggests it is being controlled in a few hands rather than creating wealth that affects the income of large numbers of middle-class. >> it is a matter of degrees. the question is when you pay the managers $10 million instead of $1 million, do you get extra performance that justifies the higher pay? >> and you say? >> it is hard to see it in the data. ceoo this is also about compensation structure. >> it is about ceo compensation

structure. -- a bigrt of the rise part of the rise in inequality top manager rise of compensation. it is hard to see in the data the extra performance. when you compare companies and you compare industries and countries and you try to see the performance, we have tried. we have not seen it. so of course you need to pay managers well, but above a certain point, when you paid $10 million instead of $1 million, it is not clear you're getting the extra performance. country,ears in this two thirds to three quarters of total income growth has gone to the top 10% and most of the top one percent. the growth performance of the u.s. economy has not been that good. 1.5%.

so if you have three quarters of that going to the top, it is not clear it is a good deal for the middle class and the rest of the population. >> what is the best economic model unit? national economic model? there is no country. we have to invent it. a somehow there is combination of the u.s. experience and the european experience creating the perfect -- >> maybe we will realize we have a lot to learn from china. maybe china will develop a better way to develop wealth. right now they don't have it. i think they are starting to realize this is not the proper way to regulate wealth inequality. of introducingng

some system of wealth taxation and maybe they do it before we do. with income inequality being the focus of lots of conversation, lots of political rhetoric, coming from people have captured the world's attention, like the pope, as you travel around and measure response to your book, not just by paul krugman, whom we admire. ,ut a cross-section of people tell me what it is -- what have you learned from that? is the level of concern bigger than you imagined? is this book a measure of the level of concern that people are looking for a formula to deal with something they now is not wrong, is not right? or something that over the long it is unhealthy if the

broad middle class is not seeing the kind of growth in their own income to match, or approach the kind of level of increase? >> what i can see when i talk about the book. not only in universities. i have been giving talks in many little including bookshops with a lot of people you would not expect would read such a book. what i could feel his very strong need -- there is a strong need not to leave this to economists. issues are important to all of us. are not want -- these technical issues. for too long economies have tried to pretend these are technical issues. you should leave them to us.

you won't understand. what i am trying to do with this book and the reason why people respond is that people want to understand this issue about income and wealth. they are too important to be left to economists. they belong to everyone. i can see that in the u.s., europe, latin america. this is attracting all of these readers. >> a friend of mine said to me today, john maynard keenan wrote his book five or six years after the great depression. is five or six years after the great recession. brought about by subprime. >> in the united states in particular, there is a feeling right now inequality has gone too far. it is contributed to financial

rigidity and the rise of household debt because of stagnant incomes. in the past five years, the federal reserve has been able to avoid a complete catastrophe. >> all of which you admire? >> better than what we did in the 1930's. it is not enough. the 1960's book in that told us what we need is a good federal reserve. you don't need progressive taxation. a good federal reserve, you are fine. this book is trying to say that is not enough. it is good to have a good central bank, you also need a aoper education system, progressive tax system on income and wealth. if we don't think that is true, we will have all the crisis again. we can't ask too much just of our central banks to solve these

problems. haveher economists suggested it is poisonous to look at the distribution system. ofit to me it is a lack confidence in democracy. it is not poisonous to have transparency. let me say right away that the main purpose of showing wealth and how groups are doing is not to conclude we are going to solve every problem by taxing the top. avoid populistto debate, we need more transparency about how the different groups are doing. >> and more taxation of the wealth. >> depending on what we see. if what we see in the data is that the different wealth groups are doing equally well and they

are all rising at the same rate, why would you need more progressive taxes? >> where we sing that? -- seeing that? since the 1980's, when have you seen that? >> it is less of a concern in europe than in the united states. >> less of a concern. >> yes. you don't have the strongly rising inequality in sweden, germany. these countries have seen the information technology. it is not only in the united states. it did not generate the same kind of rising -- >> one of the arguments made -- you finish. somehow change itself. what you have seen may change in its own evolution because of the rise of technology, providing a ay so that there will be lessening of income inequality.

wille rise of technology lead to a lessening of income inequality, maybe, maybe not. >> how could it? >> lessening of inequality, well, there is a technology called change benefit to allow everyone to become more productive, even more so for the lowest groups. i think the opposite outcome is possible. in any case, we don't want to icity to the capr technology the decision. we want to forces and the common interest. if we want to make sure they always act in the common interest that every group benefits from growth and manner, in a balanced then we need an adequate

democratic institution to make sure this happens. >> how many copies have sold so far? >> a little bit above 400,000 in the english language. and above 100,000 in french. >> so half a million copies. >> at this stage, yes. >> how will it change your life? i don't know. i am not sure it will change my life all that much. doing more tv shows with you and other great people. a nice opportunity to talk and i am very glad to do that. incentive orl some a responsibility because you believe in the conclusions you have discovered and you believe they are duster mental -- detrimental to a society? >> yes, together with my

colleagues, we are going to extend our database to emerging countries, to more and more countries. we are going to try to produce an even better and more systematic series on income and wealth inequality in the future. we will put everything online, as we have always done, and take into account constructive remarks made. move in thisry to direction. yes, we feel a responsibility because reducing more knowledge of income and wealth is useful for a more informed democratic debate. >> thank you for coming. it is a pleasure to have you here. an interesting conversation you have contributed to and i suspect there will be much more.

not only in the financial and political capitals of the world, but across the continent. so i think you. the book is called "capital in the twenty-first century." thank you for joining us. see you next time. ♪

>> this week on political capital, what effect can tour -- canto's demise has on 2014. lanhee chen ann-margret carlton -- and margaret carlson debate who's to blame on iraq. with tomthe program davis, a former virginia congressman. let me ask you this. the shockwaves from the biggest upset maybe ever. cantor.'t or -- eric >>