♪ >> from our studios in new york city, this is "charlie rose." >> thomas piketty has dedicated much of his career to understanding the intricacies of economic inequality.

he has started the conversation, his book "capital in the twenty-first century" argues that unrestrained capitalism perpetuates inequality. paul krugman has called the most important economic look of the year and may be of the decade. the current issue 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 of monet 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 that people have been fighting 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. it puts a lot of the store:

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. you had some training 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. i was curious, i could not see -- i was doing mathematical 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. so an american economist had started doing that. i put together the data from the federal income tax in the u.s. from 1913-1948. nobody really had been doing this work because it was too economical for historians. >> he gave you to go after the 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 much 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 at 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? do different groups benefit in

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? ours has 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. you also had 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. and now in the early 21st 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. you always find somebody to blame and this generates all sorts of reaction. now let me say right away i don't say that things are necessarily going to become worse and worse in terms of inequality. there are different forces going 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 be a force 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 am not saying i know for sure what is going to happen. that would be stupid. i guess the main message of the book is we need more financial 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. and then this needs to be how low and it would depend. so right now if we use the type of information of billionaires, what you have is if you take the 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. so what you need to do is more complicated. you need to look at the average wealth of the world population

and see how fast this has been growing since 1987, when forbes magazine started their ranking. it is not the same people. some go out. but if we were in a stable 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. nobody 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. people want to know. 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. at some point. of course. it can't 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. i'm not saying we're going to 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. >> the growth rate was larger. >> compared to the tiny one percent. >> right. this was due to unusual circumstances. there is 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 of reconstruction, but also for more positive reasons, which was a population growth. it is important to remember demographic forces play a big in the long run, the growth of the population is important behind total growth. that is important for the

dynamics of inequality because you can see in a country where everybody 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. >> some will argue, one from the 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. the share of inherited wealth is rising. you can see trust funds, large 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, whether 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. this means the concentration of wealth at the top is rising very fast. this will have to stop somewhere. >> will it create social tension? >> there is a law that says there is a tipping point where the world is going to fall apart. inequality is 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 get 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. what would be its impact on the way the world organizes itself? >> i was 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. how does growth 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? come 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. >> i want to change the mind of people who read books. >> because they influence policy. >> reading 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. i think social knowledge is important. inequality is not only about the fiscal system. inequality is there in the life of people. take the 19th century novels by balzac, you 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.

sometimes 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. so you have this famous 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? what are the forces that make 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. let me 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 everybody 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. you 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 groups behind income. 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 will collect more data in the future. >> did you make mistakes? the data does not say what i said it's sad because i looked at the data and did not say what i thought it said. >> no, all of the theories i have put out are the best given the evidence we have at this stage. the problem with the financial

times' 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 times it is exactly the same. the only country where they have a different conclusion is for britain in the past 10 or 20 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 don't know, what we see at the very top of the wealth distribution for billionaires also applies for people who are rich but not billionaires. people who have 5 million pounds, 10 million pounds. if we have had information, you want to take something positive, is that indeed we know too little about wealth dynamics. in a way we know more 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. the good news 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 favor of the wealth tax -- it 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. >> 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. >> in all of your modesty, can i make this proposal -- you wanted to create a new conversation about global inequality. yes? a new way of thinking and what

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? >> i didn't -- you have inequality. the question is does it increase or reduce over time i had no idea. the results of this research is that sometimes it goes down. >> only in certain circumstances. >> certain policies. >> as you had in the great depression. government policies and a war. >> sometimes you have more positive forces. it is not only the war in the depression.

education systems, preschools, that is very important. it is not a story where it goes 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. >> two have gotten attention because of you. you guys went in search of this and all of a sudden you said oh, my god, look at what the data shows. could you believe it? or 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. and all of the people who have contributed over 20 years.

when i started working in france and then in britain and in the u.s., argentina, and in india, 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. also 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. you have big changes which are 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 million 100 years ago. whatever happens to the democratic forces is going to have a huge impact on the inherited wealth and labor income. so when it 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? >> 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.

one difference is that now that the cold war is over, it has been over 20 years, when i started working, i belong to the generation with the fall of 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 was more difficult to have a 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? >> we have been asking too much 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 of the burden that it takes. >> 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. you 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 number of u.s. 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 states 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. that is 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 confiscatory, 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. >> so this is also about ceo compensation structure. >> it is about ceo compensation structure.

a big part of the rise in inequality has been the rise of top manager 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. over 30 years in this country, 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. >> somehow there is a 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. they are thinking of introducing 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, but 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 term 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 places, including little bookshops with a lot of people you would not expect would read such a book. what i could feel there is a strong need not to leave this to economists. issues are important to all of us. we don't want -- these are not 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. i am glad 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. this book 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. there was a book in the 1960's 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 proper education system, a 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.

>> other economists have suggested it is poisonous to look at the distribution system. >> it to me it is a lack of 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. but if we want to avoid populist 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 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. this may somehow change itself. what you have seen may change in its own evolution because of the rise of technology, providing a way so that there will be a lessening of income inequality.

>> the rise of technology will 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 leave to the capricity to 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 benefits in a balanced manner, 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. i'm certainly doing more tv shows with you and other great people. that is a nice opportunity to talk and i am very glad to do that. >> do you feel some incentive or a responsibility because you believe in the conclusions you have discovered and you believe they are 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. and we will try to move in this 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 thank 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 cantor's demise has on 2016. lanhee chen and margaret carlson debate who's to blame on iraq. we began the program with tom davis, a former virginia congressman. let me ask you this. the shockwaves from the biggest upset maybe ever. eric cantor. >> among members, it will have a huge affect.